Big Four are not anti-competitive - papers 12th April

A LONG-AWAITED report into the dominance of the Big Four accounting firms was welcomed by auditors yesterday after it declined to make any policy recommendations, reports The Times .

According to the paper, the 169-page report, commissioned by the Department for Trade and Industry, acknowledged that PricewaterhouseCoopers, KPMG, Deloitte and Ernst & Young collected 99% of the audit fees of FTSE 350 companies and that some listed companies, particularly in the financial services sector, were constrained in their choice of auditor.

However the report, which was also commissioned by the Financial Reporting Council (FRC), did not find any evidence of anti-competitive behaviour by the Big Four firms and did not make any recommendations on how mid-tier accountancies could win their share of the lucrative audits.

The report, carried out by Oxera, a consultancy specialising in competition issues, was commissioned last September, after KPMG was rocked by a tax shelter scandal in America. The DTI refused to disclose the cost of the report yesterday.

KPMG escaped the fate of its former rival Arthur Andersen, which collapsed in the wake of Enron’s demise, by reaching a settlement with the US Department of Justice. However, the scandal raised fears among regulators about the impact on capital markets if another big accounting firm collapsed.

Oxera found the demise of one of the Big Four would restrict the availability of audit services and leave some clients without any access to auditors.

However, the consultancy found that this was unlikely to facilitate the entry of smaller firms into the market, claiming that they faced problems with their image. Oxera was also told by interviewees that the damage done to a firm’s reputation by legal proceedings was more likely to cause its demise before the end of the case.

Paul George, chief executive of the FRC, said the report was intended to lay the foundations for the industry to engage in a wider debate. The FRC has organised a meeting later this month for accountants and investors for a wider discussion.

THE CHAIRMEN OF the country's largest companies believe a "lack of trust" is hampering their relationship with the tax authority, according to research by Revenue & Customs, reports The Financial Times.

Large businesses also sent a clear message that they want more opportunities for high-level discussions with senior tax policy makers, as only a quarter of boards felt their views on important tax issues were well represented within Revenue & Customs.

Tax simplification headed the list of concerns that most boards wanted to discuss with the Revenue. Nearly half of respondents also felt the Revenue's view of tax risk, their costs of compliance, legislative change and tax risk management were important issues. A similar proportion of respondents felt there was a lack of opportunity for these discussions to take place.

The findings dispelled a commonly-held view within Revenue & Customs that it would find it difficult to gain access to finance directors. The survey found 92% of respondents wanted their finance director and head of tax to have the opportunity to meet Treasury representatives, Revenue directors and policy people.

The researchers canvassed the views of more than 500 chairmen of large companies, 161 of whom responded. The survey asked the business leaders for their views on the Revenue's "tax on the boardroom agenda" initiative, which is aimed at persuading boards to take responsibility for tax compliance as part of their corporate governance duties.

It has been unpopular with some companies which resent a perceived interference in their ability to undertake tax planning that is within the law. Researchers said a lack of trust was sometimes expressed as a misunderstanding of the Revenue's confidentiality ethics. Its lack of commercial understanding was also flagged up as an impediment to constructive dialogue.

The survey said: "A perceived lack of trust appears to be a recurring theme. It is recommended that HMRC [Revenue & Customs] work with business and representatives to understand each other's perspectives, encourage transparency and establish the cultural changes that need to take place before trust can be earned."

FAMILIES ARE IN unwitting financial peril after putting money into complex financial investments, the International Monetary Fund has warned, reports The Daily Telegraph.

A downturn in credit derivatives, hedge funds or other complex instruments would devastate families' finances and set the world on course for a politically "explosive" confrontation between the public and government, the IMF said.

The burden of risk has shifted from banks and businesses and onto households, but most families are unaware they have signed this "Faustian pact", the Washington-based institution said.

Many are exposed because their pension funds and insurance policies have invested in the instruments. Others put their money directly into high-risk investments, attracted by prodigious recent returns.

Gerd Hausler, director of the IMF's international capital markets department, said the situation was even more worrying as many households are unaware of the risks facing them.

His warning carries echoes of the collapse of Long-Term Capital Management, when the Federal Reserve was forced to intervene and prop up financial markets. Hausler said the note of caution is particularly relevant to the UK and Northern Europe.

Hausler is quoted as saying: "Here in the UK, the [Financial Services Authority] recently opened up hedge funds to households. I'm not sure that some people who are offered these choices are fully aware that, for their pensions as well, they have something that can move quite dramatically."

The IMF combined the warning with an alert over the high and growing levels of household debt worldwide. British households are already burdened by a record level of personal debt, leaving them even more poorly-equipped to cope with financial shocks in the future.

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