Call for probe of Big Four auditors

LONDON: Britain's competition authorities should probe the world's "Big Four" auditing firms who failed to warn supervisors about banks before the financial crash, a parliamentary report said yesterday.

PwC, Deloitte , Ernst & Young and KPMG check the books of most blue chip companies in the world.

"The Big Four's domination of the large firm audit market in the UK is almost complete: in 2010 they audited 99 of the FTSE 100 largest listed firms, which change auditors every 48 years on average," the UK parliament's upper House of Lords chamber said in a report.

"It is clearly an oligopoly with all the attendant concerns about competition, choice, quality and conflict of interest. It gave no warning of the banking crisis."

It called on the Office of Fair Trading to open a detailed investigation into the audit market with a view to a possible inquiry by the more powerful Competition Commission.

"We feel it does need a broader, more sustained thorough look," John MacGregor, chair of the lawmaker panel that drafted the report, told Reuters.

Regulators see greater competition in the sector as a matter of urgency, fearing instability if one of the Big Four went under - as happened following the collapse of Arthur Andersen, which formerly helped make up an auditing Big Five.

The OFT's board meets on April 7 when it will decide on whether to open a probe into whether banks entrench Big Four dominance by insisting that companies receiving loans must be audited by one of the four firms.

MacGregor thinks this remit would be too narrow.

The European Union's executive, the European Commission, is due to come out with legislation in November to inject more competition in the auditing sector. The Big Four should also draw up "living wills" to spell out an orderly transition of clients should one of them go belly up, the report said.

The British government should also introduce legislation forcing auditors to meet every three months with supervisors about the banks they audit to pass on any concerns, MacGregor said.

This would avoid auditor concerns about sparking a collapse of confidence or run on a bank if they required a bank to publish qualifiers in their accounts, the report said. - Reuters