Audit chief accuses Big Four of low-balling

LOW-BALLING by the Big Four means smaller firms are losing out on audits they should be winning and makes investment unappealing, a senior mid-tier audit chief has claimed.

Smith & Williamson’s Giles Murphy, head of assurance and business services, said: “One Big Four firm undercut us on a recent tender and we lost out even though we were the obvious choice due to location, relationship and expertise.”

Murphy said this makes investment – a bugbear of the Big Four who say mid-tier firms cannot hope to compete if they are not willing to stump up the capital – “not worth the risk”.

“This is not a level playing field. The risks make investment unattractive because the market is so closed,” he continued.

Ernst & Young declined to comment, but a KPMG spokesman said: “We don’t support low-balling. The market is fiercely competitive, with high levels of tender activity and as a result of this we are seeing some keen pricing.”

PwC said it “does not lowball. We compete vigorously on quality and price.”

Deloitte was unavailable for comment.

With the Competition Commission and Brussels focusing on audit market reform, the Big Four insist their size is a virtue of long-term investment, saying it is unfair to break down this hard-won advantage for the benefit of smaller competitors.

The European Commission is attempting to increase competition at the top of the audit market, proposing reforms including mandatory rotation and joint audit.

Murphy argued this regulatory intervention is essential if change is to happen, saying: “We tried opening up the competition via market forces – this didn’t work, so now it’s time for stronger tactics.”

Preconceptions mean audit committee chairs are nervous of engaging a mid-tier firm, he continued. “There is no pressure on companies to look outside the Big Four. If we had mandatory rotation or even tendering, this would raise awareness of the excellent job we can do, eventually breaking down concentration at the top.”