The Big Four accountancy firms could be broken up following a wave of scandals at companies they audit that has sparked a ‘crisis of confidence’ in the industry.

The accountancy watchdog sounded the alarm over the dominance of Deloitte, Ernst & Young, KPMG and Pricewaterhousecoopers, which audited all but nine of the UK’s largest 350 listed companies last year.

The Financial Reporting Council called on the Competition and Markets Authority to investigate the case for ‘audit only’ firms in an effort to boost competition and stamp out conflicts of interest.

The accountancy watchdog has sounded an alarm over the dominance of the Big Four accountancy firms, Deloitte, Ernst & Young, KPMG and Pricewaterhousecoopers

The move would force the Big Four to spin off their audit arms into separate businesses, and follows a string of accounting scandals including at Tesco, Carillion, Halifax-owner HBOS and BT.

KPMG signed off Carillion’s accounts last year just four months before it issued the first of three profit warnings before eventually going bust.

Stephen Haddrill, chief executive of the FRC, told the FT: ‘There is a loss of confidence in audit and I think that the industry needs to address that urgently.

'There is no more competition. So it seems to me that we ought to have another look at [the audit market].’

The CMA said: ‘The authority remains open to looking further at this sector in the future.’

Critics of the industry complain that firms are too focused on lucrative areas of the business, such as tax advice and consulting, rather than audit.