Big Four (audit Firms) - Policy Issues Concerning Industry Concentration

Policy Issues Concerning Industry Concentration

In the wake of industry concentration and individual firm failure, the issue of a credible alternative industry structure has been raised. The limiting factor on the growth of additional firms is that although some of the firms in the next tier have become quite substantial, and have formed international networks, effectively all very large public companies insist on having a "Big Four" audit, so the smaller firms have no way to grow into the top end of the market.

Documents published in June 2010 show that some UK companies' banking covenants require them to use one of the Big Four. This approach from the lender prevents accounting firms in the next tier from competing for audit work for such companies. The British Bankers' Association said that such clauses are rare. Current discussions in the UK consider outlawing such clauses.

In 2011,The UK House of Lords completed an inquiry into the financial crisis, and called for an Office of Fair Trading investigation into the dominance of the Big Four. It is reported that the Big Four audit all but one of the companies that constitute the FTSE 100, and 240 of the companies in the FTSE 250, an index of the leading mid-cap listing companies.

In Ireland, the Director of Corporate Enforcement, in February 2011 said, auditors "report surprisingly few types of company law offences to us", with the so-called "big four" auditing firms reporting the least often to his office, at just 5pc of all reports.