The government has called for a comprehensive review of Britain’s auditing industry in what could herald huge changes to a sector dominated by the firms known as the big four.

Calls for reform have grown after the collapse of the construction giant Carillion and the former high street stalwart BHS revealed serious inadequacies in the auditing process.

The business secretary, Greg Clark, said it was “right to learn the lessons and apply them without delay” as he ordered the inquiry into competition within the industry where Deloitte, PwC, Ernst & Young and KPMG audit 98% of the UK’s largest listed companies.

“The collapse of Carillion exposed deficiencies in an audit process, where the market is dominated by just four large firms,” Clark said, in an interview with the Financial Times.

He added: “We know competition is one of the key drivers for maintaining and improving standards, so I have asked the Competition and Markets Authority to consider looking again at what can be done to improve the audit sector.”

Thousands of jobs were lost following Carillion’s collapse in January, with a subsequent parliamentary report finding that Deloitte – which received £10m to be the outsourcing company’s internal auditor – had been either “unable or unwilling” to identify failings in financial controls, or “too readily ignored them”.

Ernst & Young was paid £10.8m for “six months of failed turnaround advice”. Elsewhere, PwC was fined £10m by the Financial Reporting Council (FRC) for signing off on the accounts of BHS, before its sale for £1. The retailer collapsed in 2016, prompting the loss of 11,000 jobs.

Frank Field, the chairman of the work and pensions committee, said poor business practices were “waved through by a cosy club of auditors, conflicted at every turn”.

The FRC has previously called for an inquiry into whether the big four should be broken up, with their audit divisions spun off. This year, Deloitte warned that such a measure could affect the UK’s standing as a global financial centre.

Labour welcomed the announcement, but claimed the Conservatives were “playing catch-up”.

John McDonnell, the shadow chancellor, said: “The Tories are finally taking their lead from Labour on tackling the big four audit firms. Labour commissioned an independent review of the UK’s corporate auditing and accounting regime earlier in the year, and now the business secretary is trying to play catch up.

“But the government cannot use this review to sweep issues under the carpet. Failures of auditing and accounting on the Tories’ watch led to the collapse of Carillion.

“The next Labour government will change regulations to make sure scandals like Carillion never happen again.”

The review will be led by Andrew Tyrie, the head of the Competition and Markets Authority.“The CMA has been considering for some time how best to contribute to the work being carried out to improve audit,” he said. A CMA spokesperson added: “We’re actively considering what next steps are needed.”

Ernst and Young said: “We are aware of the comments made by Greg Clark and recognise the importance of the debate to ensure a strong profession. Our absolute priority is to serve and protect the public interest and bring confidence to the capital markets, and we welcome measures that would encourage new entrants into the audit market.”

Deloitte said: “We are supportive of measures to reform the audit market that respond to concerns raised on choice and perceived conflicts. At the same time we are focused on continuing to improve audit quality and any measures for reform must support the delivery of high quality audits.



“We believe that concerns raised go to a deeper question as to the purpose of audit and its value to stakeholders. To address this a wider discussion is needed to consider what the role of audit can and should be in the future, especially as large companies continue to grow in scale, become increasingly technology driven and complex, and global in their outlook and requirements.”