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‘Big Four’ accountancy firms to face scrutiny from the CMA

Published: 10:22 09 Oct 2018 EDT

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The auditing processes of the big four have come into question following the collapse of Carillion

The Competition and Markets Authority (CMA) has announced plans to probe the accountancy sector, placing the ‘Big Four’ audit firms, KPMG, EY, Deloitte, and PwC, under scrutiny.

The regulator said it would investigate whether the sector was "competitive and resilient enough to maintain high-quality standards" after concerns were raised that the industry is not working well for investors or the economy.

The auditing processes of the big four have come into question following the collapse of outsourcing firm Carillion at the start of the year.

The CMA investigation will cover three main areas; how firms chose auditors and the frequency of switching, the resilience of the auditing industry with the risk of the four firms being “too big to fail”, and the lack of incentive for auditors to produce "challenging performance reviews" given that companies rather than investors pick the auditor.

"Unacceptable deterioration in quality"

In June, the auditing work of the big four was heavily criticised by the Financial Reporting Council (FRC), the industry watchdog.

In a statement at the time, the FRC said there had been an “unacceptable deterioration in quality” at KPMG, saying that 50% of the firm’s FTSE 350 audits required more than limited improvements, compared to 35% the previous year.

The deterioration meant the FRC would have to inspect 25% more audits done by the company in the 2018-19 financial year, the first time it has taken such action.

Regarding the current investigation, the CMA’s chief executive Andrea Coscelli said it planned to issue its provisional findings before Christmas.

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