Further consolidation would be disastrous says FRC chair

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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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  • Comment by Philosopher Accountant

    what a piece of ludicrous double speak Not too big to fail but disastrous if consolidated . As an account working in the US I struggle to explain the English word Pratt In future I will just give them Sir Winfred as an example David Layzell

  • Comment by Stephen Herring

    Having been a partner in both a Big 4 firm and two other international accounting firms, I am convinced that there are far too many generalisations on this matter. Not all FTSE 100 companies are that complex; less than half are in my view. Global financial services, energy and pharma are, no doubt, Big 4 only at present so far as the annual audit is concerned but the FTSE 100 includes many largely UK only/European/G20 companies where the next tier could undertake the audit. By the way, what is the "FTSE 300"?

  • Comment by Anonymous

    Don't the big four firms need to fail for the government to pay their pensions?