Jessica Fino 8 Feb 2018 12:16pm

Stronger case needed to break-up Big Four, says minister

Not enough “compelling evidence” to dismantle the Big Four following Carillion, says cabinet minister David Lidington

MPs at a parliamentary liaison committee asked Lidington whether there was a case for the biggest accountancy firms to be broken up following large fees they received despite questions over their work with the collapsed construction group.

Lidington replied, “I think even on a case as high-profile as Carillion, one would need to have compelling evidence to justify that. We have an independent Competition and Markets Authority, after all, and if it believes that the market has become a cartel in effect then the CMA has powers to investigate and to take action.”

Deloitte, EY, KPMG and PwC each received letters from the Business, Energy and Industrial Strategy and Work and Pensions select committees last month, asking for detailed accounts of all services the firms provided to the construction company and the fees received.

KPMG has audited Carillion since the company’s inception in 1999 and signed off on its accounts last March – four months before the business issued a profit warning triggered by a £845m writedown and nine months before the company collapsed.

During an evidence session about the collapse of Carillion, MP Rachel Reeves pointed out that “there are only four big audit firms”, and that all of them “earned substantial fees over the last 19 years from Carillion”.

“The work just seemed to move between the four of them, and I am sure Carillion is not unique in that,” she added, before asking if there was a case for breaking up the big four audit firms.

Last month, Frank Field, chair of the Work and Pensions Select Committee, criticised KPMG and its role in signing off Carillion’s accounts.

"Another day, another company goes bust hot on the heels of a clean bill of health from a Big Four financial services firm,” he said. “The particularly nasty twist in this now grimly familiar tale is the mountain of debt and giant pension deficit this public services contractor leaves in the wreckage of its collapse– with an accompanying massive hit to the public purse.”

Field continued, “It must also be time now for the auditors who cosily signed off this disaster-in-the-making as a 'going concern' less than a year ago to begin to account for themselves.”

He also recommended a break-up of the “oligarchy” of the Big Four firms to Financial Reporting Council (FRC) chief executive Stephen Haddrill.

Haddrill said the FRC would be recommending the Competition Market Authority to review the effectiveness of audit rotation rules and an increase in competition among accountancy firms.

Meanwhile, KPMG is being investigated by the FRC over its audit of the construction company. Its enforcement division will examine whether KPMG has breached any ethical and technical standards for auditors after giving a green light.