It’s been talked about for quite some time now: the ‘Big Four’ accounting firms may be forced to split up. In October, the Competition and Markets Authority (CMA) begun conducting a study of the auditing market, and recently published their review.
Here, we detail what exactly the issues are with the Big Four, as well as the potential impact of them breaking up.
Controversy around the Big Four
Much of what has brought the Big Four into the spotlight is the financial reporting scandals of well-known companies. You’ll likely be aware of the supermarket Tesco overstating their profits for the first half of 2014. There was an investigation into PwC, too, but this was eventually closed. There were also the controversies involving telecoms giant BT’s Italian business, along with the collapse of construction firm Carillion.
The Big Four’s oligopoly has been placed at the centre of the blame. Many believe that this results in poorer quality reviews, and causes a conflict of interest when they’re auditing and consulting for their clients. It was found that 97% of the biggest companies have their audit conducted by the Big Four, with 75% receiving other services too.
This conflict of interest has led the CMA to suggest in their review that these services be delivered by separate companies. They also recommended that those who appoint auditors should have their decision closely examined. This will mean their accountability is increased, and so they shouldn’t just pick the best ‘cultural fit’ for them, but one that offers the toughest scrutiny.
A ‘joint audit’ system was put forward too, where a Big Four and non-Big Four company could complete an audit cooperatively. These recommendations should make audits more robust and of higher quality. In turn, this will help maintain the UK’s competitive position in preparation for leaving the EU.
Impact on businesses
Along with the industry being more stable for when Brexit day arrives, the reforms should better serve the interests of companies, shareholders and society at large. They will allow for some competition in the market, meaning there would no longer be an oligopoly, and the Big Four wouldn’t necessarily have to split.
These changes should give businesses significantly more confidence in the accounting and auditing sector as a whole. The scandals have caused concern over whether the businesses operating within it can be trusted, but we can anticipate that the potential rehaul will drastically improve it for the better.
How to trust your accountant
These changes aren’t expected to happen for some time, but you can still have faith in your accountant now. A quick look at their testimonials or any case studies will tell you whether their work has been verified or not.
Nabarro Poole are one such trusted accountant. For over ten years, we’ve been providing validated services to clients. These include management accounts, help with budgeting and forecasting, and tax planning. We also offer the standard compliance services if you require them.
For further information about our trusted services and how they could meet your unique needs, get in touch with our team today.