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Business & Finance Series: Expert Comment

CMA audit reform proposals are 'timely and bold', says City academic

Dr Atul Shah argues the “oligopoly” of the Big Four accountancy firms to be broken up


Commenting on the Competition and Markets Authority report into the accountancy industry, Dr Atul Shah of City, University of London has argued that reform is urgently needed.

The academic – whose research spans fields such as international financial regulation, accounting and business ethics – agreed with calls for the “oligopoly” of the Big Four accounting firms to be broken up.

He also welcomed proposals in a Labour report on the issue and the publication of an independent Government review by Sir John Kingman into the Financial Reporting Council.

Dr Shah, of the Department of International Politics, said: “The CMA proposals – to shake up audit quality and independence, and reduce the power of the Big Four – are timely and bold. They would enhance corporate governance significantly.

“The latest Labour report is also very welcome, as is the Kingman review.

“Regulation needs to be brought firmly back into state control and monitoring, and the oligopoly of the Big Four has to be broken urgently. To tackle an economic cancer, we must be bold and attack the roots of professional negligence and corruption."

A significant cost to society

Dr Shah argued that audit firms’ failure to spot major problems in large companies has far-reaching effects.

He said: “As the Labour report claims, auditing firms are ‘mired in conflict of interests and have shown willingness to bend the rules at almost any cost to increase their profits'. Scandals have followed and auditors’ silence has been ‘a major factor in loss of people’s pensions, jobs, savings and investments’.”

“Audit failures result in a significant cost to society, and this has to be prevented and averted – these expert reports, and their reform suggestions, are welcome news as they are practical and constructive.

“The reviews arose from huge public anxiety about negligence, incompetence and abuse of power riddled with profound conflicts of interest. It is about time that society tackled the juggernaut that is the audit industry with radical reforms to protect ordinary people, and stop the 'boys policing boys' culture that has prevailed for far too long.

“My own research has shown that change requires a fundamental reform of the regulatory architecture surrounding accounting and its regulation.”

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