Among listed firms, PwC and KPMG dominate audit market
More than half of the stock market companies in Jamaica utilise the ‘Big2’ accounting firms – Pricewaterhouse Coopers and KPMG – which the Fair Trading Commission (FTC) said reflects their large market power.
Between 2013 and 2018, some 353 audits of companies listed on the Jamaica Stock Exchange were conducted at a price of $5.7 billion, the competition watchdog stated in a report titled Competition in the Jamaica’s Audit Services Industry.
“The results of this study suggest that the auditing services market in Jamaica may be susceptible, if not being subjected, to the undue exercise of market power,” the FTC stated.
“Of the total number of audits done, the Big2 accounting firms accounted for 56 per cent with a commensurate 75 per cent of the audit fees,” stated the FTC report.
FTC stopped short of calling the auditing firms oligopolies but noted that some qualities were met.
“The share of the market controlled by the Big2 auditors exceeds the commonly accepted oligopoly threshold of 60 per cent,” stated the report, while noting that more work needs to be done to draw a conclusion.
Responding to the report, an accountant who spoke on condition of anonymity, criticised the report as being too narrow in scope.
“I think you should respectfully ask whether the whole audit market is represented – the small, micro enterprises, public sector, tourism, agriculture, mining, and so on,” said the accountant. “If it is not, then is it fair to conclude based on the narrow sample of economic activity represented on the stock exchange that there is an oligopoly.”
FTC Executive Director David Miller said that the accountant’s points regarding the narrowness of the study were noted and that the agency would be conducting additional work, including interviews and consulting with the regulator of auditors at the Public Accountancy Board.
But as for the issue regarding whether the dominant firms were oligopolies, Miller pushed back, saying the FTC study had made no such assertion.
“We have not made any conclusions. We are saying that more research needs to be done to examine the structure, the nature of the players and why it is that the Big2 are so much larger than the others,” he said.
The two main reasons given for so much business going to PwC and KPMG were 'reputation and technical capabilities', the FTC report noted.
The study found that within the five-year period covered in the report, 12 clients switched auditors, half of which migrated from a non-Big2 to a Big2 firm.
“All switching from non-Big2 to Big2 auditors involved KPMG. Of the six switches to KPMG, three were from EY,” the FTC said.