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British politician pledges to break up “cartel” of big four accounting firms in radical overhaul

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  • The big four accounting firms could be broken up as
    part of a “radical” overhaul of the industry under a Labour
    government, the shadow chancellor John McDonnell has
    said.
  • McDonnell told the Financial Times that the big four
    firms which include EY, KPMG, Deloitte and PwC form a “cartel”
    that needs to be addressed.
  • The politician has commissioned Prem Sikka, professor
    of accounting at Sheffield University to conduct a review
    before any policies are formed.
  • In May a cross party group of MP’s spanning two select
    committees called for the big four “cosy club incapable of
    providing the degree of independent challenge needed.”

 

The big four accounting firms could be broken up as part of a
radical change promised by the UK’s Labour party, a senior
opposition politician said ahead of a party conference on Sunday.


Shadow chancellor John McDonnell told the Financial Times

that a “radical” overhaul of the sector would be carried out by a
Labour government to end the big four’s dominance, which he
described as a “cartel.”

Britain’s big four accounting firms which include EY, KPMG,
Deloitte and PwC, dominate the auditing of Britain’s 350 largest
companies and have been under increasing pressure after financial
reporting scandals involving telecom giant BT, food retailer
Tesco and the collapse of Carillion.

Critics say the big four have a monopoly on the industry,
reducing the quality of their company reviews, and have conflicts
of interest through the firm’s work as both auditors and
consultants for clients.

“They have demonstrated that they have a range of conflicts of
interest” McDonnell
told the Financial Times.
 “I don’t think they have
addressed the public anger about their role.” 

The shadow chancellor added that Labour is considering breaking
up the big four or limiting the number of companies each firm is
allowed to audit to allow competition back into the market.
Labour is also considering banning companies from both auditing
and consulting for the same client.

McDonnell has commissioned a “radical review of the industry”
which will be done by Prem Sikka, professor of accounting at
Sheffield University.  “We are looking for radical
solutions… There is a range of options.”

The politician said no decision would be made on policy until he
sees the recommendations in the report, which Labour requested in
January following the collapse of the construction company
Carillion.

In May, a cross party group of MP’s spanning two select
committees called for the big four firms to be referred to the
competition markets authority for possible break-up, after an
inquiry following Carillion’s collapse. MP’s called it a “cosy
club incapable of providing the degree of independent challenge
needed.”

Carillion’s collapse also demonstrated a “catastrophic”
inadequacy in the UK’s regulatory system, McDonnell said.

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