Competition

Principles

The market framework for audit and assurance services should reflect the quality and performance of market participators.

Overt anti-competitive practice should not be permitted.

“Positive discrimination” is not an answer in changing the market, unless extraordinary circumstances occur, causing doubt about stability of capital markets.

Liability of firms should be proportional to related revenue.

Comment

The UK auditing market is dominated by the four largest suppliers (as is the case internationally).

Perceptions of audit quality and international capability reinforce this dominant position.  Even the term “big four” is excluding by definition.  The reality in both areas is different from the perception, as regards quality and particularly in respect of our own international coverage.

Government, regulators and investors could do much to change these perceptions.  An encouragement by government to participate more fully in the public sector would increase competition and drive down price.  The same is true in the private sector, but relies more on changing perceptions.

Perceptions equating size with quality will only change when they are demonstrably untrue.  This requires quality to be understood as more than a vague totem, and to be measurable and capable of benchmarking.

Anti-competitive practices, such as “big four” only clauses in banking agreements, are an expression of the competition issue – they are not the cause of it.

Another distraction in this debate is auditor liability.  The competition position isn’t affected by the current position on liability, but it could be if it was inappropriately dealt with.  An approach based on proportionality would best avoid any further encroachment on competition.

If firms like ours are to bridge this perception gap they will need to invest in both their technical resource and in their international networks.  They will only do so if they see a chance of a fair market.