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By Matthew Quinn
In a new working paper, the American Antitrust Institute uses the financial crisis as a reason to once again look at ways to reduce the dominance of the Big 4 accounting firms.
The think tank worries that litigation related to an economic meltdown could result in the loss of one of the major audit firms -- PricewaterhouseCoopers, KPMG, Ernst & Young, and Deloitte Touche Komatsu -- further adding to industry concentration.
"Since the dual shocks of the collapse of Arthur Andersen (reducing the Big 5 to 4) and the enactment of stringent regulations by the U.S. Congress in 2002 in reaction to corporate accounting scandals, there is great concern in the financial community that another of these companies could be forced out of business, further reducing the choice of auditors for multinational corporations and causing disruptions in the marketplace," the paper authored by Bernard Ascher and Albert Foer said.
Therefore, the paper suggests that Congress should consider including Big 4 audit firms in its review of the regulation of banks and other financial institutions, particularly those regarded as "too big to fail."
The paper proposes that, if Congress were to consider limiting the liability of audit firms, it shouldn't do so without setting conditions that are likely to make the audit industry more competitive. One way to do this, the AAI said, would be to set incentives for voluntary divestitures as a means of reducing audit industry concentration in an orderly manner.
"This could serve as a starting point for determining how the open season for divestiture would operate and how to deal with the inevitable questions and issues as they arise during the legislative process," the paper said.
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