The Commission’s Internal Markets Commissioner, Michel Barnier, is floating the idea of imposing a break-up on KPMG, Ernst & Young, PwC and Deloitte, which between them mop up two-thirds of all listed company audits in the UK including all but one of the FTSE-100. (Standard Life is audited by PwC.)
The combined revenues of the big four are more than double those of the next 50 companies in the industry.
Standard Life Investments, alongside Aviva Investors and Hermes, is now urging inter-national regulators to consider radical intervention.
Guy Jubb, head of corporate governance at SLI, said: “We believe that progress must be made in an orderly fashion towards an audit market that provides greater choice. To date we have been patient but market forces have failed to deliver any meaningful progress towards greater choice in the audit market.”
He went on: “We believe the audit firms should be given a chance to restructure their operations to enable improved choice without prejudice to audit quality. We believe this approach should be championed at a global level and the authorities should provide leadership to help bring this about.”
SLI, in evidence to an investigation under way in the House of Lords, says it believes the concentration of the audit market is “fundamentally unhealthy and presents a systemic risk which has the potential to undermine financial stability and the confidence of capital markets”. The big four global networks should be given “a reasonable time” to respond constructively before governmental and regulatory authorities intervened. “This approach should be championed at G8 and G20 levels to provide leadership and the requisite commitment.”
SLI and Aviva both favour the handing over of more work to smaller players, such as Grant Thornton and BDO, while Hermes says companies should put their audits out for tender every five to seven years.
The three big investors also want the auditors to provide more oversight of listed com-panies’ accounts, including greater disclosures in their reports.
Mr Jubb has also told the International Accounting Standards Board’s constitutional review that he is surprised at the “relative absence of any substantive reference to the legitimate role of shareholders and investors” in their capacity as providers of long-term capital to the global markets.
