WRITTEN QUESTION P-1567/02

by Christa Randzio-Plath (PSE) to the Commission

(28 May 2002)

Subject: Competition/auditing

As a result of the Enron scandal, the problem of financial stability in relation to the role and position of audit companies in the US and Europe, too, has become a focal point of public interest.

Over the last few years, the number of large audit companies has continued to decline, thus very much restricting the ability of large, internationally operating firms to choose or change their auditors.

This is not only an important regulatory and supervisory issue; the fact that there are few actors in the auditing business only four firms in the US gives cause for concern in terms of competition, too, in particular since, as the case in point of Enron illustrates, financial market stability can also be affected.

In the European Union, over 80 % of the 100 largest firms in Belgium, France, Italy, the United Kingdom and the Netherlands make use of only four audit companies; in other countries, that figure is well over 50 %. Though there are large firms operating at national level, they are not in a position to withstand competition.

Are these not then developments which give cause for concern in competition terms? What is the Commission's assessment of competition within auditing in the European Union, given that there are very few firms competing with each other nationally, does the Commission think that action needs to be taken, and what measures does it propose in connection with Articles 81 and 82 of the EC Treaty?

Answer given by Mr Monti on behalf of the Commission

(26 June 2002)

The issue of competition in the auditing industry is being closely followed by the Commission both at the level of structural changes in the number of market players (through the application of the Merger Regulation, Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings(1)) and at the level of the market players' behaviour (through the application of Articles 81 and 82 of the EC Treaty). In its 1998 decision in case No IV/M.1016 PriceWaterhouse/Coopers & Lybrand, the Commission analysed in detail the competitive conditions of the audit and accounting markets. Notably, it found that these markets enjoyed a high level of concentration and may be prone to issues of collective dominance. It however concluded that there were still enough players active in the markets (five) to ensure sufficient competition.

One of the consequences of the Enron scandal has been the collapse of the Andersen Worldwide audit and accounting network. This has the potential to increase the level of concentration in the auditing industry further. In the wake of that collapse, each of the national members of the Andersen network is now seeking to join one of the remaining large four global accounting networks (i.e. KPMG, PricewaterhouseCoopers, Deloitte & Touche Tohmatsu and Ernst & Young). Some of these transactions may have a Community dimension and will need to be reviewed by the Commission under the Merger Regulation, as is the case for the purchase of Andersen (United Kingdom) by Deloitte & Touche Tohmatsu (notification on 29 May 2002). The Commission will investigate the competitive consequences of each of these transactions with utmost care. At this stage, however, the Commission cannot advance any conclusion on the likely outcome of the competitive analysis of these transactions. Similarly, the Commission will continue to monitor closely the nature of competition in the auditing industry.

(1) OJ L 395, 30.12.1989, whole text republished in OJ L 257, 21.9.1990.