Introduction

The Big Four are the four largest auditing firms taking majority market share worldwide. The quartet is made up of Pricewaterhouse Coopers which is the largest of the four with a profit of $26.2 billion at the year end of last year (Chasan 2009). The second is Deloitte Touche Tohmatsu also known as Deloittes and is the biggest auditing employer with approximately 169,000 employees in 2009 (Deloitte 2009). Ernst & Young is ranked in third place, whereas KPMG follow closely behind. Smaller companies outside of the 'Big Four' cartel only take 0.3m of total auditor fees. The Big four once was the Big Eight which eventually dwindled to the current four which are not single firms but a network of firms. The Big Four audit all FTSE 100 companies, and represent 99% of audit fees in the FTSE 250. There has been a substantial amount of debate on the audit market over the last few years in the UK and abroad. There has been concern about increased concentration since at least 1989 (Oxera 2006).

Impact of the Big Four

The 'Big Four' have had a huge impact on the auditing profession over the past few years with both beneficial and detrimental consequences. The main positive aspects the Big four have contributed to the auditing profession are the global economic value. The majority of auditors have been trained by the Big Four if not working for them which is a positive as they are keeping a huge amount of people in employment, around 611,500 worldwide to be exact. However they also dent the economy because they restrict the smaller companies who are very capable but get over shadowed. In the perspective of businesses having the Big Four audit their company it is almost a status symbol and adds credibility to the company which can be seen as a positive, however it gives the assumption the smaller companies are unable to meet standards and are somehow not up to par which is not necessary the case. The four largest firms are auditors of choice to the FTSE 350, largely because they are seen to have greater capacity and international coverage, the best people, industry-specific knowledge and relevant value-added services. (Hawke 2006). As the largest auditing trainers the Big Four also have a huge input into the actual auditing syllabuses which may be a good thing because as profession auditors themselves they may have more knowledge that governing bodies may have, however this may affect independence. As well as components of the auditing service itself the Big Four can offer value-added services on top of the audit itself, and insurance against catastrophes and reputational risk. The Big Four are also perceived to have greater capacity and international coverage to deliver the third key component: the technical audit itself. (Oxera, 2006) A negative of these market leaders is that they dominate the FTSE 100 and the majority of the FTSE 250 giving the smaller auditing firms an extremely low chance of auditing major

firms. The major firms also see the Big Four auditors as a means to add value to their reputation. This comes from the assumption they are somehow better than the smaller firms on grounds of experience. However a quote from Grant Thornton said: I am tired of the sustained campaign by the Big Four that they provide better audits than anyone else. We have taken over audits from Big Four firms and found problems in the accounts.(Hawkes 2006). This suggests the smaller companies are just as capable as the major runners in the industry. Investors have shown concerns because the quantity the Big Four audit may affect quality. So for the big four, the obvious staff shortage problems cause individual auditors a heavy work load which may result in compromised audit quality and independence. This will affect the auditing professions reputation. 'The criticism is that smaller firms have been denied access to the more lucrative large scale consultancy roles.' (Collings 2002) A vast amount of board members which are suppose to be independent from auditing firms are trained by the Big Four and therefore may be bias. Also, ex-employees of the Big Four firms often go to work for another Big Four company which conjures up the issue of independence. The major companies also are supplied with other services from the Big Four sometimes maybe the accounting and auditing are services are provided by two different departments of the same company. Who is to say the two departments interact or if the independence is kept. The Big Four earn about 70% of all global accounting fees and all of the FTSE 100 companies are audited by one of the firms. This is despite the fact that best practice means the same accountants should not be used for auditing as well as, say, strategic or tax work.' (Buckingham 2008) The larger companies can come together to form an organisation like a cartel where they can push out competition from smaller firms so they receive the biggest contracts from the larger companies therefore making larger profits and dictate audit fees. 'According to some observers, the Big Four have deliberately lowered their prices in order to keep smaller, middle ranking accountancy firms out of the audit market.' (Collings 2002)

Another reason the Big Four are seen as a negative occurrence in the UK market is the way there law breaking antics are overlooked at times because of their value. 'The government decided in 2005 to avoid indicting KPMG for crimes it admitted committing'. If audit firms interpret the government's reluctance to indict as signalling aversion to tough action against them, moral hazard arises. (Cunningham 2006)

Figure 1. (The annual audit fees survey, 2008) From figure. 1 we can see the huge amount of the market the Big Four possess. Findings shows a limited number of UK-listed companies have no effective choice of auditor in the short run. In addition, switching rates are low (around 4% on average for all listed companies, 2% on average for FTSE 100 companies), and competitive tendering does not occur frequently (Chen 2009). Effectively the big four have an oligopoly over the auditing market. 'The Big Four have crushed the global competition.' (Buckingham 2008).

Ethical Issues Concerning a Big Four Firm Tendering for the Audit of a Clients Competitor
Discipline over members Since Firm A have already audited this existing customers competitor, they know all of their companys financial details. Firm As auditor must discipline themselves by keeping their clients financial information separate from each other. It is vital because any disclosure to their rival will bring the negative affect for market competition. They wont be able to expose businesss data to their rival as this could cause data leakage and competitors could take the information and use it to their ability. One of the key ethical behaviours of an auditor is that they must ensure that data is kept confidential. This includes not only their competitor, but also anybody outside the auditing team. Professional behaviour and technical standards Firm A audited a large FTSE100 company and will audit another similar company; this scenario strongly tests the auditors professional behaviour and technical standards. They already know the relevant auditing technique and procedure from previous auditing experience, but they are not allowed to adapt the existing method paste for the new customer of a similar nature to save time. It is prohibited because the individual firm contains its own special circumstances, which vary from firm to firm. The auditor should stick to the the auditing procedure of their firm and check every detail regardless of ex-experience in professional and technical financial reporting. This is a key factor as auditors need to prevent and protect themsleves from being sued by companies due to immoral behaviour as they have followed their company regulations. Independence If the auditing firm becomes too familiar with firm A, its independency is compromised if it audits a direct competitor of firm A. If the Big 4 audit firms were to rotate their FTSE 100 clients between each other every 7 years this problem would be overcome. "Auditor Independence ," requires that an audit firm and its associated persons be independent throughout the audit and professional engagement period. (Catherine, 2006, p.59 - 64), therefore the big 4 must abide by this rule and to remain independent it must not audit 2 firms that compete with each other at the same time, but will be able to audit the competitor firm after the engagement period. Objectivity

Objectivity is how honestly the auditors conduct their work, Objectivity requires auditors not to subordinate their judgment on audit matters to that of others (UOB, 2009), therefore if a big 4 firm audits firm A its objectivity will be compromised because the big 4 firm may divulge their opinion on audit matters of the competitor firm to firm A.

Integrity If a Big Four firm audits a firm over a long period of time they may become like friends with that firm and if that auditor audits a competitor of that firm, they may leak information over to the competitor. If the big 4 firm has a Corporate integrity unit (CIU) to provide proactive fraud detection and prevention services and maintain responsibility for all aspects of corporate fraud. (Martin et al, 2007, p79-83), then the integrity aspect of the big 4 firm is not compromised as it has an internal team governed by rules to stop any deceptive, fraudulent and illegal activities if it decides to audit both firms.

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Presentation: Tuesday 23rd March. 3.10pm

Evaluate the true and fair concept and its relevance to stakeholders
The true and fair concept has been a key factor of the accounting and auditing practice for many years in the UK and is seen as a requirement to prevent accounting statements becoming biased or distort. Lord Hoffman and Dame Mary Arden defined the meaning of true and fair in 1983 and 1993 but since then the law and accounting standards have changed significantly implying that the term and opinions have become outdated and irrelevant as better terminology could be used. The argument on whether to adjust or remain with the true and fair terminology is balanced and as a consequence the true and fair concept is still being used. The FRC Chief Executive believes the opinion of Lord Hoffman and Dame Mary Arden is an important confirmation that the concept of true and fair is a key contributor to the integrity of financial reporting in the UK. [http://www.frc.org.uk/about/trueandfair.cfm] However, arguments have been made that the term true and fair should be replaced with acceptable risk of material misstatement as it will support the communication of auditors when reporting accounting information. The meaning of true and fair is seen as unclear and controversial. A stakeholder is a person, group, or organization that has a direct or indirect stake in an organisation because they can affect or be affected by the organisation's actions, objectives, and policies. [http://www.businessdictionary.com]. The main stakeholders of a business are the customers, suppliers, shareholders, the government and its employees. Customers rely on the business and expect them to provide a high quality service and product as they have faith in the business to use it. Suppliers have to take the risk and put their trust into the business as they want to get paid. Both customers and suppliers want the business to do well as the suppliers will want to continue making sale and the customers will expect prices to go slightly lower if the business is doing well. Shareholders and other owners of the business want their value of the business to rise, therefore they have an interest for the the business to do well. Other stakeholders include people within the surrounding environment and local community as they want the business to be economically healthy and not ruin the surroundings. It is important for the stakeholders of a business to get the correct idea of the business as shareholders invest in the business and need to know whether the information is realistic and honest so that they dont make a loss and intend to make profit. Customers of the business would like for the company they use products from to offer a good service and to have a good reputation of their brand name. If the company was to misinterpret something that the auditors didnt pick up on then the stakeholders may suffer as a result of this and the auditors may get sued by the stakeholders of the company as they are seen to have more money and are a much more easier target to blame. Employees may also be shareholders and would therefore want to be aware of how the business is doing. For most employees, having a clear picture of where the business is going is important. [http://www.bptrends.com/publicationfiles/04-06-WP-StakeholderAnalysis-Curtice.pdf]. All stakeholders will have high expectations from the company they are interested in and many of them support the companies. They would expect for the accounts to be true and fair as they have a stake in the business and want that stake to be honest and real. If data is misinterpreted then their stake wouldnt be 100% real. The big four accounting firms, Pricewaterhouse Coopers, KPMG, Ernst & Young and Deloitte all have to respect their stakeholders in order to keep their status and independence

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Presentation: Tuesday 23rd March. 3.10pm

and making mistakes could allow companies to sue them, which will ruin their reputation. KPMG were sued in April 2009 for negligent auditing over materially misstated financial statements which caused them a bill of at least 693million. Overall the term true and fair has got its weaknesses but auditors still follow the concept as it is still a part of the English law and has been for many decades and the big four firms still use it as a basis as stakeholders want the honest information. IAS 1 and other laws and regulations state that business should use a true and fair approach and that there should not be any misinterpretations of any sort or any fraud going on. The less than transparent reporting of companies activities can have a negative impact of perception of that organisation in the outside world.

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Presentation: Tuesday 23rd March. 3.10pm

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