EU commissioner intends to break dominance of 'Big Four' audit firms
EU INTERNAL markets commissioner Michel Barnier has called time on the dominance of the “Big Four” auditing firms, calling for more competition and diversity in the market for large audit contracts.
PricewaterhouseCoopers, Ernst & Young, KPMG and Deloitte & Touche dominate Europe’s audit market and each has significant operations in Ireland.
In a new consultation paper on reform of the sector, Mr Barnier questions how banks received a clean bill of health from their auditors immediately before the eruption of the financial crisis.
“The crisis has highlighted failings in the audit sector,” he told reporters yesterday. Calling for improvements, he said the discussion should be frank and open. “No subject should be taboo.”
Mr Barnier’s call for a comprehensive debate comes against the backdrop of a multi-pronged effort to toughen financial regulation generally and introduce oversight into the markets for derivatives and credit default swaps.
In so doing he has placed great emphasis on the role of the “Big Four” firms, saying he wants to open up the market and asking why auditors did not ring alarm bells in the run-up to the crisis.
“The fact that numerous banks revealed huge losses from 2007 to 2009 on the position they had held both on and off balance sheets raises not only the question of how auditors could give clean audit reports to their clients for those periods but also about the suitability and adequacy of the current legislative framework,” the commissioner’s paper says.
“The commission notes that the past two decades have seen the consolidation of large firms into even larger firms,” it continues.
“After the demise of Arthur Andersen there are now a handful of such large, global firms, with an even lower number of firms being able to perform audits of large, complex institutions.”
Noting that the total market share of the “Big Four” exceeds 90 per cent in most EU states, the paper says such a concentration might entail an accumulation of systemic risk. It goes on to note that the collapse of a firm that has reached systemic proportions could disrupt the entire market.
Mr Barnier’s paper questions whether there should be “joint audits” and raises the prospect of mandatory rotation and retendering of contracts. It also calls for an examination of “Big Four” bias.
“As a result of the consolidation at the upper end of the market, there appears to be a higher level of ‘comfort’ with the appointment of a ‘Big Four’ firm as a company’s auditor,” the paper says.
BIG FOUR AUDIT FIRMS CLIENT LIST
AIB (KPMG replaced PwC after John Rusnak debacle)
Irish Life & Permanent
Anglo Irish Bank (Deloitte has replaced E&Y as auditor)
Irish Continental Group
Ernst & Young
Bank of Ireland
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