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Cable pursues Government over Big Four audit domination

Liberal Democrats leader Sir Vince Cable tells Financial Director he is seeking action from the Business Secretary Greg Clark for a review he says the Competition and Markets Authority should be looking into

Liberal Democrats leader Sir Vince Cable is writing to Greg Clark, Secretary of State for Business, in a bid to win government support for a Competition and Markets Authority probe of the Big Four accountancy firms.

Cable told Financial Director he believed approaching the Business Secretary was “a sensible way forward” to force a review of the UK audit market following the publishing last week of a parliamentary report into the collapse of British outsourcing firm Carillion.

The report called for a break-up of the Big Four accounting firms, saying they operated as a “cosy club incapable of providing the degree of independent challenge” that was required.

At the weekend shadow chancellor John McDonnell said Labour had commissioned an independent review of how Britain’s audit market works.

Cable said he approached competition authorities to look at the issue five years ago. “They balked at the structural changes and what we ended up with was obligatory rotation, which was a bit of a step forward in audit but hasn’t led to an enormous difference.

“I then wrote to the CMA to ask for more radical solutions. Given last week’s parliamentary report on Carillion, the big issue now is: Are the CMA willing to be more radical than in the past?”

“They’ve been feeble on a whole lot of issues- not least on banking as well as the audit question”, said Cable.

The Lib Dems leader said there is growing momentum to tackle two audit issues- competition and the cross over between consultancy and audit and where there is “perceived or actual conflict of interest,” said Cable.

Cable said the CMA should come up with a set of proposals “in short order”, adding: “They have a new head in Andrew Tyrie who was a very effective chair of the Treasury Select Committee that oversaw the banking system. He is quite respected but needs to be quite tough on this issue,” he added.

Regarding the challenge of undertaking a break-up of the UK audit market when so much accountancy work is undertaken internationally, he said: “The obvious way to pursue competition issues that are too big for Britain is through the European Commission.

They have been willing to take on the big tech giants so maybe they should join the CMA in looking at the audit market as well,” he said.

Cable said there is an argument for having a public authority that looks at competitiveness in the audit market in its own right. “I haven’t thought through what it might be, but maybe it should be looked at,” he added.

Cable said if the audit function were split up from the rest of an accountancy firm’s work, it would mean fees for purely audit work would have to go up. “It’s an incentive for up and coming firms like Grant Thornton and BDO and American equivalents to come into the market and provide an efficient service,” he suggested.

A CMA spokesman said: “We are working closely with the Financial Reporting Council, 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 Business Secretary declined to comment.

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