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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