Big Four audit share should be capped at 60% argues ICAEW

Other remedies include introducing French-style joint audits, says industry body

The Big Four should have their share of large company audits capped at 60 per cent, according to the industry body for accountants.

Such a cap would encourage mid-tier firms into the market for auditing large firms, says the Institute of Chartered Accountants in England and Wales (ICAEW), responding to a Competition and Markets Authority (CMA) review of Britain’s embattled audit sector.

Audit’s Big Four – Deloitte, EY, KPMG and PricewaterhouseCoopers –have been accused of having a cartel-like position dominating the market for listed companies, leaving smaller accounting firms unable to get a look-in.

The collapses of government contractor Carillion and retailer BHS have led to criticism of oversight provided by the sector.

However, any such cap would need to offer the Big Four with the prospect of enough business to keep them in the market, while encouraging challengers to invest in the capacity and resources needed to operate at this level.

Restricting the Big Four to around 65 large clients for any firm would be a workable alternative approach to a collective cap, added the ICAEW.

This cap should be reviewed regularly, initially after three-to-five years.

Meanwhile, regulators could consider introducing a French-style joint audit system to break the Big Four’s stranglehold on the top end of the market, says the ICAEW.

It said there was “a risk that one of the Big Four could either fail, or voluntarily withdraw” from the market for auditing the UK’s top companies if intervention is too heavy-handed.

Under the French-style joint-audit system, two or more auditors produce a shared audit report for which they carry shared liability.