The Financial Services Authority yesterday warned about the potential risk to market confidence from the global dominance of the socalled Big Four accounting firms and of the difficulties of regulating them.
"There is now a potentially significant risk to international and domestic markets' market confidence that could crystallise were the collective reputation of the socalled 'Big Four' to be collectively impaired, or were there to be a major problem at one of the firms leading to a contraction to three," the FSA wrote in its annual International Regulatory Outlook.
The reputation of the auditing industry and those who dominate it - KPMG, Deloitte, Pricewaterhouse-Coopers and Ernst & Young - has struggled to recover from the corporate bookcooking scandals that started with the collapse of US energy firm Enron in
2001. Auditor Arthur Andersen was destroyed by a criminal indictment arising out of the accounting fraud.
Last week the US auditing industry watchdog, the Public Company Accounting Oversight Board, said it had found deficiencies in past audits done by Ernst & Young and PwC.
The FSA said national regulators were frustrated that they do not have the scope to oversee the four large auditors because although their operations are global they are built on networks of local partnerships.
"There is now a growing debate among national regulators relating to the oversight of - and risks to markets arising from the market dominance of and resulting reliance on - the 'Big Four' accounting and audit firms," the FSA wrote.