Barriers to entry: reputation and experience
Deloitte’s response to the Competition Commission's working paper
Deloitte’s response comments on the following areas:
- Experience and capability
- Influence of alumni
- Awareness of audit firms
- The fragility of reputation
- Companies’ views of external pressures
- Conclusions drawn in the Working Paper
Some of these issues are also covered in Deloitte’s responses to other working papers, namely a) Framework for the CC’s assessment and revised theories of harm, and b) Restrictions on entry and expansion.
In summary, we can see no evidence to support the notion that there is a ‘virtuous circle’ for top tier firms or a ‘vicious circle’ for mid tier firms, still less that any such phenomena may be negatively impacting competition in the market for audit services.
Mid tier firms have sufficient expertise and experience to tender effectively for many FTSE 350 audits, they have the wherewithal to make approaches to FTSE 350 companies, and there are no external pressures or restrictions preventing FTSE 350 companies from appointing a mid tier auditor.
Above all, the purchasers of audit services are fully qualified and have all of the tools available to them to make informed decisions on which auditor to appoint, how that auditor has performed, and whether to reappoint that auditor or put the audit out to tender. Any suggestion to the contrary has no basis in the evidence.