An investigation into the Big Four's dominance of the UK blue chip audit market looks likely after the long-awaited publication of the findings of a governmnent-sponsored analysis of competition in the sector.
The report by the Financial Reporting Council (FRC) examined the role of Ernst & Young, Deloitte, KPMG and PricewaterhouseCoopers in auditing the UK's biggest companies.
It concluded that the Big Four's strangehold over the services was unhealthy for competition and prevents smaller firms from winning blue chip clients.
The study revealed that 97% of the FTSE 300 companies are currently audited by one of the Big Four.
Barriers to entry in the market for the four accountancy firms' smaller competitors are "high", it said, and under current conditions entry by a mid-tier business is "unlikely".
FRC said many firms outside the Big Four struggle to break into the market due to a perception that they cannot do the job and would need to demonstrate strong sector-specific skills, international coverage and high quality staff to win blue chip clients.
Long-term complainants about the dominance of the Big Four welcomed the report findings and although it did not put forward any recommendations, a consultation will now follow on measures to reduce actual and perceived barriers to market entry. Further investigation into the Big Four is also possible.
Michael Cleary, managing partner of mid-market firm Grant Thornton, said: "This report has confirmed the existence of what could be termed 'institutional prejudice' against the small number of other audit firms which can compete in the public company audit market."
Jeremy Newman, from BDO Stoy Hayward, added: "There might be as few as 150 UK companies that through scale and very specialist resource are best served by a Big Four firm. However, the domination of the Big Four runs through the 1,500 Fully Listed public companies."
Spokespeople for the Big Four hit back at the criticism.
Gerald Russell, senior partner at Ernst & Young, said the report merely highlights a "choice problem" claiming the barriers to entry are purely economic and geographic.
He added that the study had not uncovered any wrongdoing or anti-competitive behaviour so it was unclear what form a regulatory response would take.