TPB, ATO quizzed on whether PwC ‘too big to fail’
Audit concentration among the big four makes the sector unmanageable, Greens senator claims.
The audit sector is too concentrated to regulate and PwC has become “too big to fail” because that would overload the rest of the big four, Greens senator Barbara Pocock told the parliamentary inquiry into consulting services yesterday.
TPB chair Peter de Cure conceded the audit sector was strained but said the regulator would punish misconduct to the extent of the law, which allowed deregistration and five-year bans.
“There’s clearly discussion in the market about, for instance, the public company audit situation,” Mr de Cure told the inquiry. “The big three other than PwC would say they wouldn’t be able to absorb that spillover if PwC were to exit that market.”
Senator Pocock said Mr de Cure’s comments about concentration in the audit sector amounted to a concession that it had become unmanageable.
“That is an incredibly important statement that you’ve just made,” she said. “You’ve said the concentration is such within this sector that the load of withdrawing one player, even if as we know their sins are egregious, would not be manageable – it prevents regulation, the concentration prevents the regulation and the imposition of an appropriate penalty because the market couldn’t cope. That’s a big problem for regulation.”
Later at the inquiry, deputy commissioner Jeremy Hirschhorn said market concentration in audits was a two-edged sword.
“There are some benefits and some difficulties from there being a highly concentrated market,” he said. “The benefits are that by influencing the behaviour of several participants, you can actually have a big effect over the entire system.”
“The detriment of course is that if any one player sort of strays beyond the lines, that can have a big impact on the system and drag others with them. They can distort the market.”
“This means you have to be highly active as [an] administrator or regulator where there is a concentrated market. This is why we have … became much more active in terms of how we communicated our expectations of what it is to be a large tax firm to the market.”
He said when it came to audits, especially for multinationals, ASIC had concerns about regulating such a highly concentrated sector but in the case of tax, the market would quickly adjust.
“If one of the large firms left that market there would be a period unsettled but there would be enough providers that the market would resettle in a new place.”
Earlier, the TPB confirmed it had begun a formal investigation into “a further aspect” of conduct at PwC that extended beyond the nine partners named by the firm to date.
Mr de Cure also welcomed the draft legislation in response to the PwC scandal, saying it would empower the board to share information, strengthen its register and extend whistleblower rules to offer protection to someone speaking to the TPB.
“The TPB as a body is not currently eligible for whistleblowers to make a disclosure to and be protected by the whistleblower legislation. After this legislation passes – if passes the way appears to be – then we will be an eligible recipient, so a person can make a whistleblower disclosure to us and be protected.”
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