The Big Four audit blues

Kuala Lumpur: An increasing number of Malaysia's public-listed companies (PLCs) have moved away from the Big Four audit firms in recent years and gone for smaller ones.


Industry players said the trend, which has become more pronounced recently, is evident by the Big Four's dwindling market shares here.

The Big Four refers to the four largest international firms, namely Deloitte Touche Tohmatsu, PricewaterhouseCoopers (PwC), Ernst & Young and KPMG.

"We're looking at that as a trend," Nik Mohd Hasyudeen Yusoff, executive chairman of the Audit Oversight Board (AOB), told Business Times.

Lee Tuck Heng, a partner at PwC Malaysia, said the trend started taking shape in the last three to five years but seems more pronounced now.

"If you look at the market share of the Big Four, big eight firms, it's dwindling ... and it is the next tier of audit firms that are taking up some of this market share," said Lee, who has over 30 years of audit experience at home and abroad.

It is understood that PwC's market share of PLCs here has fallen to just under 8 per cent, while that of Ernst & Young has dropped to some 26 per cent.

Crowe Horwarth has probably been the biggest non-Big Four audit firm to gain from this trend.

Industry players cited fees as one of the key reasons driving PLCs to mid-tier and smaller accounting firms.

Audit firms, especially the bigger ones, have of late been see-king higher fees to match the risks they take on. Audit firms in Malaysia are among the lowest paid in the region and they often cite the low fees as a major challenge for them to be able to secure and retain adequate talent.

"It's driven by a few things. One, obviously, is in terms of fees. Two, maybe it's also because of the tighter regulatory regime, with the advent of the AOB, the firms are increasingly reassessing in terms of the risk equation ... and perhaps, finding that some clients may not give them the appropriate returns for the services they're giving," said Lee.

Some boards of PLCs don't believe in paying more for services and so that could result in an "agreeable separation" between them and their auditors, he said.

Questions have been raised on whether this trend towards smaller firms is good for the lo-cal capital market, especially with some PLCs choosing to go with smaller audit firms only because they cost less.

Nik said the AOB will extend its audit inspection to mid-tier and smaller firms this year to ensure that high standards of audit quality are maintained.

"Whether it moves towards smaller ones or larger ones, the focus should be on quality and credibility because that is what we need in the capital market," he remarked.

The AOB was set up in April last year to oversee audit firms of PLCs. Last year, it conducted regular inspections on six major audit firms, including the Big Four.

Meanwhile, institutional investors like Aberdeen Asset Management Sdn Bhd say they aren't worried by the trend.

"I think it's good because it releases the grip of monopoly on the (Big) Four to do everything. There is a tendency to get complacent when you think you're (naturally) going to get re-appointed. I think smaller firms, because of their size, may tend to work a bit harder to get recognised," said its head of equities Abdul Jalil Rasheed, who helps manage US$2.5 billion (RM7.6 billion) of assets.