Labour Party piles further pressure on the Big Four with break up plan

We don’t normally stray too far into the world of politics but every UK lawyer, legal techy and their dog will be interested to note that The Big Four accounting firms are facing further break up threats as part of plans by the UK’s Labour party to overhaul the auditing industry, which shadow chancellor John McDonnell described as a ‘cartel’.

McDonnell told the Financial Times ahead of the Labour party conference that started yesterday (23 September) that options under consideration include breaking up the Big Four – comprised of PwC, EY, KPMG and Deloitte – or setting a maximum audit market share for each firm.

Another option could involve banning firms from taking consulting work from the companies that they audit, which critics say create conflicts of interest.

McDonnell has commissioned Prem Sikka, professor of accounting at the University of Sheffield, to write a report that will inform a final decision.

The announcement potentially puts further pressure on the accounting giants following a review of the collapse of Carillion, in which MPs called for the Big Four to be referred to the UK competition authority for potential break up.

In May a scathing report into the collapse of Carillion accused the Big Four of being “complicit” and described the group as being “a cosy club incapable of providing the degree of independent challenge needed.”

For the mid-tier law firms that the Big Four represent the main threat to – leveraging technology and processes to automate many of their bread and butter services – anything that can unsettle the Big Four if not derail their march into legal services will be a ‘good thing’.

Deloitte in January applied for an alternative business structure licence, becoming the last of the Big Four to establish a legal division in the UK. PwC’s legal operations generated around £70m in revenue during the 2017-18 financial year, putting it notionally just outside of the UK top 50.

EY in August acquired Riverview Law in what we described as “one of the biggest but perhaps most inevitable ‘oh shit’ moments for mainstream law in the expansion of the Big Four into legal services.

We will shortly be publishing an exclusive report into the technology that the accounting giants use. Keep your eyes on legaltechnology.com

To read PwC’s annual report, published on 17 September, click here: https://www.pwc.co.uk/who-we-are/annual-report.html