A group of representatives from the “challenger” audit firms met with members of the Business, Energy and Industrial Strategy Committee last week to discuss ways of opening up the listed audit market to wider competition.

At a private meeting at the House of Commons, the firms told the MPs present – including BEIS chair Rachel Reeves – that they would like to see the rules changed to make the market a more attractive proposition for them.

The meeting, which was facilitated by ICAEW, was set up for BEIS Committee members as part of their normal information gathering process.

Reeves said that the discussion had been useful and informative for the MPs. “Members are keen to explore how policy makers can help to deliver a more trusted and diverse audit market,” she added.

The Big Four, which have invested billions in building new audit technologies to meet the requirements of large and complex audits, currently dominate the market. As the challengers pointed out, they are significantly larger than the competition. For example, the four are nearly 20 times the size of some of the other top 10 largest UK firms. Even the fifth largest firm, Grant Thornton, is less than a third the size of KPMG, the smallest of the Big Four.

A number of top firms – including Grant Thornton and Smith & Williamson – have withdrawn from the listed audit marketas a result of escalating costs, increased regulatory scrutiny by the Financial Reporting Council and the apparent preference among audit committees and shareholders for the Big Four as auditors.

Their withdrawal has further exacerbated the problems over choice in the market.

Some options mooted recently include a cap on the number of listed companies firms can audit, an independent public body to appoint auditors, joint audits and the possibility of the Big Four sharing their technology with the challenger firms.

Following the meeting, ICAEW chief executive Michael Izza said, “Everyone accepts that the status quo is no longer an option and that things need to change.

“ICAEW was particularly pleased to be able to facilitate this meeting between MPs and representatives of the challenger firms. Sustainable and meaningful change can only take place if we understand what the drivers and blockers of market participation are.

“The BEIS Select Committee was therefore keen to discuss the issues faced by firms that would like to compete in a more diverse market for listed audits.”

The BEIS Committee is not the only group of MPs to consider audit. The collapse of Carillion in January has focused attention on how to ensure that future audits are high quality and fit for purpose.

Back in July, the All Party Parliamentary Group on Business, Finance and Accountancy held a roundtable with the Big Four and a number of the “challenger” firms, at which they agreed that they had a rare opportunity to reimagine audit.

Last week Treasury Select Committee chair Nicky Morgan met representatives from the Big Four, nine of the top 25 firms and ICAEW over dinner at Chartered Accountants Hall to discuss a range of topics including ways of rebuilding trust in business and corporate governance.

Originally published in Economia, September 2018.