Risk & Economy » Audit » Rachel Reeves tells FDs to look beyond Big Four

Rachel Reeves, chair of the Business, Energy and Industrial Strategy (BEIS) Committee, has demanded finance directors help bring about the appointment of a wider set of auditors.

Following the joint Work and Pensions and BEIS committees’ report on the collapse of Carillion which called for a competition review of the audit market, Labour’s Reeves told Financial Director: “Not all major companies need to go to the Big Four. I would encourage them to use smaller companies in the interests of supporting SMEs, and supporting a competitive market.”

The committees’ report criticised Deloitte, EY, KPMG and PwC over their relationships with Carillion and said that problems at the failed outsourcing giant were partly a result of the domination of the audit market by the Big Four that needed to be addressed.

Reeves’ comments follow a letter from her and Work and Pensions committee chair Frank Field to incoming Competition and Markets Authority head Andrew Tyrie, who has yet to begin the role, to investigate. “Frank Field and I have already written to Andrew Tyrie asking for details of his timetable for pursuing this work,” said Reeves.

She said that although the Department for Business, Energy and Industrial Strategy (BEIS) was responsible for the CMA, demand from the government for an investigation into the audit market was not required. “The CMA can investigate on its own initiative,” she said.

Last week, Liberal Democrats leader Sir Vince Cable told Financial Director he was writing to Business Secretary Greg Clark to gain support for a CMA investigation into the Big Four.

Cable also said that because of the international structure of large accountancy firms, the European Commission (EC) needed to undertake a simultaneous examination of the market.

But Reeves said her committee would not be seeking direct support from the EC to launch an investigation. “We would expect the CMA to engage with the EC as part of its work,” she added.

The letter from Frank Field and Rachel Reeves to Andrew Tyrie on 22 May said: “In your evidence to the BEIS Committee on 24 April, you said the audit oligopoly was “certainly something that needs to be looked at.

“It looks increasingly inevitable that the CMA will conduct a review. Might we please ask whether you will demonstrate what a new broom you are at the CMA, by asking your staff to initiate that review as soon as possible?”

Earlier this month Richard Keers, the CFO of FTSE 100 member Schroder Investment Management said that part of the problem for why the Big Four dominate in audit is a deeply flawed system.

“There’s a big gap between the Big Four and the rest in terms of competence, and that’s unhelpful,” said Keers, who joined Schroders from PwC where he was the lead audit partner for the asset manager. He took a mandatory two-year break from auditing Schroders before joining the firm.

“Michel Barnier [the EU chief Brexit negotiator who was the Internal Market and Services Commissioner] tried to solve that problem but made it even worse, as every FTSE 250 company now has to have its audit retendered and a Big Four team is always going to look better than a division two firm, so the Big Four have won even more audits and got bigger. They’re passing it around each other now,” he said.