Treasury to investigate ‘policy problems’ with big 4 firms
Treasury plans to release an issues paper later this year examining potential policy concerns within the big four firm space including market concentration and self-regulation.
Speaking at a Senate Hearing yesterday, Treasury Director, Corporate Conduct and Analysis Unit, Deepti Paton said that Treasury has been closely examining the competitive characteristics of the audit and consulting industry in the context of its review of the regulation in this area.
“We are proposing to put out an issues paper towards the end of this year. We expect that the issues paper will cover a number of what I would call policy problems in this space of which competition will be one,” said Ms Paton.
Senator Barbara Pocock said an examination by Treasury of the economy wide effects of the big four firms was critical, given their “unprecedented reach and influence in government and the private sector and the extraordinary level of concentration that characterises the terrain of the big four firms”.
Treasury was also asked to address concerns raised from a previous hearing that the concentration of audit work among the big four firms had impacted the proper regulation of these firms.
Deputy secretary for Treasury’s Revenue Group, Diane Brown said that part of Treasury’s review would involve checking that the big four firms can be regulated, given the scale and market share of these firms.
“Currently these firms are being self-regulated and they have been for a while. That was a model from when they were all a lot smaller and there was competition that provided some restraint,” said Ms Brown.
The last time a review has been undertaken on self-regulation was Treasury’s Taskforce on Industry Self-Regulation back in 2000, she said.
“Part of the review will be looking at how those circumstances have changed since then,” she said.
Treasury will also be exploring the substantial reforms made in the UK in the past few years that have driven operational separation between the audit and consulting activities provided by the big four firms.
“We’re looking to get more information on what drove those reforms and also any lessons that they’ve learned in the implementation,” said Ms Paton.
“If we speak about notions such as PwC exiting the audit industry, what we’re looking at keenly in the context of our review is what that means for the supply of certain services that we consider to be essential.”
Ms Paton noted that while audit is an essential service for the economy, auditors are regulated at an individual level.
“When we're looking at competition in the market, we're cognizant of the fact that even if a particular masthead doesn't survive, those skills remain in the country and are able to be deployed,” she said.
“So, there is the level of competition that occurs between firms but then we’re also looking at the resilience of the sector underneath that.”
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