Jessica Fino 9 Nov 2018 10:14am

Deloitte proposes audit market share cap

Deloitte has recommended a market share cap in the UK audit market among Big Four firms and a ban on providing non-audit services to FTSE 350 clients

In its evidence submission to the Competition and Market Authority’s (CMA’s) review, Deloitte said imposing a cap on the number of audit clients a firm can take would address choice and competition issues, reduce barriers to entry and address concerns around the resilience of the UK audit market.

Moreover, a ban on non-audit services provided to FTSE 350 and large unlisted public interest entity audit clients would address issues around conflicts of interest.

Yesterday KPMG announced it is stopping non-audit work for FTSE 350 clients, to “remove even the perception of a possible conflict.".

However, Deloitte is not expected to follow suit and implement any changes before the CMA publishes its conclusions by the end of the year.

Deloitte argued conflicts of interest between the firms’ public interest audit responsibilities and the advisory services they provide happen “very infrequently”, but admitted a ban would help improve public trust in the UK’s audit market.

It added this would require a clear definition of large public interest private companies and of “audit services”.

“We would suggest that as well as the annual audit, this includes the half-year review, bond offerings, grant applications, reporting on historical financial information, work on offering circulars and similar services. All other services, with no exceptions, would be banned,” the firm wrote in its response.

However, Deloitte argued that splitting up the Big Four is “not workable and would lead to a deterioration in audit quality”.

“We strongly believe that [the CMA’s proposals] would not be effective in improving audit quality or increasing effective competition or resilience in the market. On the contrary, both would damage audit quality.”

According to the Financial Reporting Council’s annual report, Deloitte earned £214m in fee income from non-audit work for audit clients last year – less than 10% of its total £2.9bn turnover.