I’m Dreaming of a Regulation-lite Christmas!
So the Competition and Markets Authority has just fired the starting pistol on a detailed study of the audit sector which, at first blush, appears to have the Big Four audit firms clearly in its sights.
THE CMA’s investigation will cover customer choice and switching; examine whether any of the Big Four (Deloitte, KPMG, E&Y or PwC) are “too big to fail”; and test the relationship between auditors and company managements and see whether, behaviourally, these fail to meet the needs of companies’ own shareholders.
Whilst the CMA has been keen to say that it has written to the Government about its forthcoming investigation and the possible need for legislation to implement its findings, some commentators are likely to suggest that behind-the-scenes lobbying of the CMA before today’s announcement may already have paid handsome dividends. The CMA faced two regulatory choices: whether to hold a light-touch six-month market inquiry; or to initiate a full-blown two-year market investigation. The CMA has interestingly opted for the former and announced that it will “move swiftly” and report provisional findings before Christmas. The Big Four are likely to breath a sigh of relief at this news. The commercial and reputational disruption and uncertainty to their business will, they are likely to conclude, be short and manageable.
Now, of course, will begin the intensive programme of work by the Big Four and their advisers to refute their critics’ claims that audit quality has been impaired, or that it has adversely affected the quality of savings, pension pots and investments in companies whose audits may not have been up to scratch. That, in turn, means disproving any case the CMA may promote, or model that it may build, that would seek to enhance competition or make significant or structural change to the market and the Big Four’s role within it.
Time will tell whether Christmas will bring seasonal cheer to the Big Four or whether their stockings may be bulging with some unwelcome new gifts from the CMA.