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7 May 2014 04:31pm

Further consolidation would be disastrous says FRC chair

Further consolidation of the Big Four “would be disastrous”, the new chair Financial Reporting Council (FRC) said today

Giving evidence in front of the Treasury Select Committee today, Sir Winfred Bischoff said he did not believe the Big Four were “too big to fail”, but in the event of a major problem care would need to be taken to avoid further consolidation, or a repeat of the collapse of Arthur Anderson following the Enron scandal in 2002.

“I suspect that if there were a major problem one would need to be more thoughtful than we were with Anderson,” he said. “Not the whole firm, but part of the firm could fail.”

Responding to questions about the concentration of FTSE 100 audit contracts going to Big Four firms, Bischoff said that further rotation was limited by the capabilities of smaller, mid-tier audit firms.

He said, “It is very difficult to find among the next group those that really feel they have the competence on complex global companies.”

The business models of smaller auditing firms tend to be tailored towards medium sized and FTSE 250 or FTSE 300 companies, he said.

But, he said, further competition would be favourable. “In ideal circumstances one would have a big six.”

Bischoff also fielded questions about the appropriateness of his appointment to the role of at a regulator, following previous roles at both CitiGroup and Lloyd’s bank.

John Mann, MP called Bischoff’s credibility into question and said, “You are one of the insiders’ insiders”.

“The FRC has a board and has committees,” he said. “I think I am the only banker. We have an outstanding management team. I have a board that am answerable to and I have an executive team with which I will be working.”

Commenting on the evidence, ICAEW chief executive Michael Izza stressed the breadth of quality outside of the Big Four, he said, "It is important to remember that there is quality also below the Big Four audit firms."

“The companies, and especially the audit committees of corporates, have a responsibility for looking for this quality and considering all options when appointing an auditor.”

Ellie Clayton

 

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