Investment management companies have called on the competition watchdog to ensure that the quality of audit is not affected as it is investigating the dominance of the so-called Big Four firms.
As a response to the Competition and Markets Authority, Standard Life said that the division of the dominant audit firms – Deloitte, PwC, EY, and KPMG – is “undesirable.”
In the response that was published last Saturday, it stated: “The greater risk is that the scale of auditing becomes too small to warrant it continuing as a service with the conglomeration of services provided by the Big 4 and there is a market withdrawal.”.
It added: “The splitting up of the Big 4 or other measures to reduce the workload would exacerbate this risk…The splitting of the big 4 to create eight firms is undesirable.”
The competition watchdog is reviewing whether the audit market is fit for the purpose after a number of failures that were experienced in the sector.
Both Carillion and BHS were given a clean financial bill of health by KPMG and PwC respectively prior to their high-profile collapses.
Various investment companies were concerned that smaller firms were ill-equipped to audit the finances of large multinational businesses.
Schroders, a global asset management firm, stated: “The drive towards companies appointing firms outside of the Big Four is unrealistic and risks further undermining the audit profession.”
It added: “Based on their existing capabilities, medium and smaller audit firms are generally unable to provide a proper audit service to large global or highly regulated businesses.”
The response continued: “Outside of the Big Four firms, our experience is that the audit firms are generally unable to deliver a global audit independently.”
USS Investment Management further stated: “We would also like to emphasise that we would not favour any UK-only remedies such as this that might impair our ability as a global investor to encourage globally consistent governance practices.”