UK: implementation of the MPG recommendations - FRC progress report published

The Financial Reporting Council has published its fourth progress report on the implementation of the recommendations of the Market Participants Group regarding choice in the UK audit market. In addition to a summary of recent developments, the report contains a summary of current and previous market concentration statistics and these tell us that as of August 2009, the Big Four audit firms (Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers) were responsible for auditing 99% of companies in the FTSE100 and 94% in the FTSE250. By way of background, the report notes:

In October 2006 the FRC established the MPG, which consisted of investors, companies and audit firms, to provide advice on actions that market participants could take to mitigate the risks arising from concentration in the market. The establishment of the MPG was a result of the preference for market‐led solutions expressed by respondents to a discussion paper issued by the FRC in May 2006.

In October 2007, the MPG published 15 recommendations intended to allow the audit market to work more efficiently and, in the medium‐to‐long‐term, to have a positive impact on audit choice in the UK. The recommendations included supply‐side measures intended to encourage non‐Big Four firms to offer audit services to large public interest entities and demand‐side measures, making boards more accountable to shareholders and reducing the perceived risks to directors who choose a non‐Big Four auditor. In addition, the MPG made recommendations on the need to mitigate the risk of a major audit firm leaving the market, and to minimise disruption might be minimised in the event that this were to happen.

The FRC committed to report every six months on progress in implementing these recommendations; previous Progress Reports were published in May 2008, November 2008 and May 2009".