According to a report commissioned by shadow chancellor John McDonnell, Labour wants to see the big four accounting firms – Deloitte, PwC, EY and KPMG – broken up, ending the group’s dominance of the accounting market.
The report recommends capping their share of the audit market, with the big four significantly influencing the perception that the accounting industry suffers from a lack of openness, transparency and accountability.
Reducing audit dominance
The big four currently work with all but ten of the business listed on the FTSE 350. Labour wants to see this number slashed so that they would be working with a maximum of 50 per cent. This, says McDonnell’s report, will stop the firms being able to act as a cartel and stand in the way of competition.
The big four have shown some willingness to change, previously suggesting that a limit should be phased in over five to ten years. Some compromise comes with the Competition and Markets Authority (CMA) proposal that audits of UK companies listed on the FTSE 350 should be carried out by at least two firms, with one of these outside the big four.
Making accountants accountable
Labour’s report calls for further change. The firms would no longer be able to provide auditing as part of a service package, with providers such as https://www.mushroombiz.co.uk/homepage/services/accounting/ that offer services such as outsourced accounting services able to secure business from clients who had previously been relying on the big four to provide them with a package of services.
There should also be a new state-backed organisation to audit financial institutions, says McDonnell, as this is an area of particular public concern.
Smaller accountancy firms want to see limits applied to more than just the big four, with firms on the next tier down moderated accordingly so that the big four do not just spin up a few new members from their ranks and remain as a stranglehold to the wider accountancy industry.
It is not just clients of accountancy companies that are losing out with the current audit process. The millions of people who invest in savings and pension funds rely on auditors doing their job and ensuring the financial institutions we rely on are working in the best interests of their customers.