Julia Irvine 23 May 2018 10:51am

Tyrie urged to act fast at CMA over Big Four

The chairs of the two select committees jointly investigating the Carillion collapse have written to Andrew Tyrie as the new head of the Competition and Markets Authority (CMA), asking him to initiate a review of the statutory audit market

In the letter, Frank Field, chair of the Work and Pensions Committee, and Rachel Reeves, chair of the Business, Energy and Industrial Strategy (BEIS) Committee, ask Tyrie to “demonstrate what a new broom you are at the CMA, by asking your staff to initiate that review as soon as possible”.

In particular, they want the CMA to look at the possibility of breaking up the Big Four “into more audit firms, and detaching audit arms from those providing other professional services”. This was a key recommendation in the report the joint inquiry issued last week.

At the time, Reeves said that the “sorry saga of Carillion” was further evidence that the Big Four firms were putting their own profits ahead of good governance at the companies they were supposed to be putting under the microscope.

“KMPG, PwC, Deloitte and EY pocket millions of pounds for their lucrative audit work – even when they fail to warn about corporate disasters like Carillion,” she said.

“It is a parasitical relationship which sees the auditors prosper, regardless of what happens to the companies, employees and investors who rely on their scrutiny. The Competition and Markets Authority must now look at the break-up of the Big Four accountancy firms to help increase competition and deal with conflicts of interest.”

It is not yet certain when Tyrie, whose appointment as chairman of the CMA has yet to be approved by the BEIS committee, will start at the authority. However, A CMA spokesperson said: “We are working closely with the Financial Reporting Council (FRC), whose role it is to regulate the quality of UK company audits, to see what more needs to be done to drive up standards.

“As part of this, we are actively monitoring the impact of the remedies put in place following the Competition Commission’s inquiry.  

“The CMA remains open to looking further at the audit sector itself and will work with the FRC in support of any action it chooses to take,” he added.

The two select committee chairs have also written to Sir John Kingman who is heading up an independent review of the FRC, pointing out that its joint report also highlighted “multiple serious concerns about the performance of the FRC”.

In their letter, they ask him to confirm that his review will consider whether the leadership of the FRC is “equipped to effect” the change in culture that the regulator needs “to perform as it should”.

Letters from the chairs have also been sent to all the witnesses who gave evidence to the joint inquiry asking them to respond to the conclusions and recommendations in the report by 4 July.