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Audit sector may be 'too big to fail' - Investment Association

The Investment Association has responded to the Competition and Markets Authority consultation on the Statutory Audit Market, highlighting that the lack of competition in the sector may hinder regulators and effectively make the industry ‘too big to fail.’

Liz Murrall, Director of Stewardship and Reporting at The Investment Association, said:

“Investors rely on the quality and robustness of audits when making investment decisions and holding company management to account. While examples of audit failure are relatively rare, they have serious implications when they do occur. Recent Audit Quality Reports suggest there is a worrying decline in quality and that trend is of concern to investors who rely on high-quality audit as a key plank of theinvestment and stewardship processes.

“We also remain concerned at the lack of real choice in the audit market. Too often audit committees appear reticent to appoint a firm that is not one of the ‘Big Four’. In order to address the current levels of market concentration, auditors outside the Big Four need to scale up to meet the needs of the market. In return, companies should be inviting a range of firms to tender and investors would expect that only the large multinationals should be restricting their choice to the Big Four.

“There is a serious risk with such a small pool of auditors dominating the market that regulators feel unable to impose significant sanctions without risking driving one of the key players out altogether. The prospect of the Big Four becoming the Big Three risks making the audit sector too big to fail.”

ENDS

For further information, please contact:
Ben Rathe, Senior Communications Manager: ben.rathe@theia.org
T +44 20 7269 4655

Notes to Editors

About the Investment Association (IA):
  • The IA champions UK asset management, supporting British savers, investors and businesses. Our 250 members manage £7.7 trillion of assets and employ around 100,000 people across the UK.
  • Our mission is to make investment better. Better for clients, so they achieve their financial goals. Better for companies, so they get the capital they need to grow. And better for the economy, so everyone prospers.
  • Our purpose is to ensure investment managers are in the best possible position to:
    • Build people’s resilience to financial adversity
    • Help people achieve their financial aspirations
    • Enable people to maintain a decent standard of living as they grow older
    • Contribute to economic growth through the efficient allocation of capital.
  • The money our members manage is in a wide variety of investment vehicles including authorised investment funds, pension funds and stocks and shares ISAs.
  • The UK is the second largest investment management centre in the world, after the US and manages 35% of all assets managed in Europe.