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Economic Affairs Committee launches inquiry into Auditors: market concentration and their role

27 July 2010

The House of Lords Economic Affairs Committee have today launched a new inquiry entitled Auditors: market concentration and their role. It will look into domination of the audit market by the Big Four accountancy firms PricewaterhouseCoopers, Deloitte, Ernst & Young and KPMG.

The Committee will explore concerns that market domination by a small number of firms damages competition and reduces choice in the audit market as well as raising questions about the quality of audited accounts and possible conflicts of interest between the auditing and business consultancy roles of the Big Four.

The Committee will also consider whether auditors should have done more ahead of the banking crisis to alert investors to the riskiness of assets held by the banks.

The Committee invite evidence by 24 September:

Areas they would particularly welcome evidence on include:

  • How has auditing come to be dominated by four global firms? Should more competition be introduced? And if so how?
  • Does a lack of competition lead to excessive fees being charged?
  • Were auditors sufficiently sceptical when auditing banks in the run up to the financial crises in 2008? Could they have done anything to mitigate the crises? Can auditors now contribute to better regulation of banks?
  • Do conflicts of interest arise between audit and consultancy roles? How can these be avoided or mitigated?
  • Should the role of internal auditors be enhanced and how should they interact with external auditors?

Commenting at the launch of the inquiry, Lord MacGregor of Pulham Market, Chairman of the Lords Economic Affairs Committee, said:

“The auditing industry has been dominated by a very small number of players for some time now. We will look at the scope for promoting more competition 

“Auditing is a very high profile issue following the financial crises and we will seek to establish whether the market dominance by a small number of auditors contributed to a failure to pick up on unsustainable risks being taken on by international banks.

“We would invite evidence from any interested parties and hope our report will contribute to improving operation of the auditing market to ensure it provides a better service to both business and investors.”