Mr Clark has indicated that the inquiry may lead to legislation. He told the Financial Times in an interview: “There are questions about the competitiveness of the audit market and there are questions about conflicts of interests.”
Big Four facing inquiry
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Greg Clark: ‘questions about competitiveness’
UK Business secretary Greg Clark has instigated a review of the audit sector following concerns over its failure to spot large scale company collapses.
Mr Clark wants the Competition and Markets Authority (CMA) to carry out a review of competition in the sector which is dominated by Deloitte, EY, KPMG and PwC.
Critics have questioned the quality of audit work since the collapse of the banks ten years ago and more recently following the demise of outsourcing company Carillion and the retailer BHS.
Mr Clark has also asked John Kingman, a former Treasury official and chairman of Legal & General, to carry out an inquiry looking at ways of removing conflicts of interest in the sector and investigating whether auditors of large listed companies should be appointed by a public body.
Sir John has also been asked to produce a report before the end of the year on whether the Financial Reporting Council (FRC) has been sufficiently rigorous in regulating the sector.
In May, a committee of MPs investigating Carillion’s failure called on the CMA to consider breaking up the so-called Big Four accountancy firms. It said its enquiries exposed the UK audit market as a “cosy club incapable of providing the degree of independent challenge needed.
The committee said adding Carillion’s auditor KPMG had been complicit in the company’s accounting practices.
A month later, the FRC ordered the Big Four accounting firms to improve their auditing work and picked out KPMG for particular criticism and an “unacceptable deterioration” in quality.
The FRC also issued a damning indictment of PwC’s handling of BHS, criticising the firm for “rubber stamping” the accounts and declaring the company a “going concern”. This was just days before it was sold for £1.