It's what the word Schadenfreude was invented for

A Parliamentary committee has called for an inquiry into Britain's "oligopolistic" audit firms after condemning them for "complacency" and "dereliction of duty" during the financial crisis. The House of Lords Committee on Wednesday ripped into the Big Four audit practices Deloitte, KPMG, PriceWaterhouseCoopers and Ernst & Young and recommended that they face an investigation by the Office of Fair Trading.

This could lead to a Competition Commission inquiry aimed at reining back the power of the four firms that audit the accounts of 99 of the companies in the FTSE 100 . Reserving particular criticism for the three firms that audit Britain's banks which excludes E&Y the committee found that a "breakdown of dialogue between bank auditors and regulators made the financial crisis worse". "We do not accept the defence that bank auditors did all that was required of them. In the light of what we now know, that defence appears disconcertingly complacent," the Lords' report found. The committee heard that, following 1997's transfer of bank supervision from the Bank of England to the Financial Services Authority (FSA), there was a gradual breakdown in communication between the firms auditing banks and the regulators.

The upshot was that in 2006, during the run-up to the banking crisis, there was not a single meeting between the FSA and the auditors of Northern Rock (PwC) or HBOS (KPMG). There was only one meeting between RBS (LSE: RBS.L - news) ' auditor, Deloitte, and the financial regulator. All three banks were subsequently bailed out by the taxpayer, at a cost of more than £70bn in direct support alone. Describing the "paucity of meetings" as a "dereliction of duty by both auditors and regulators", the committee found that either the banks' auditors were "culpably unaware of the mounting dangers" or "equally culpably failed to alert the supervisory authority".

Asked if there was a case for legal action against them, Lord Lawson, the former Chancellor who sits on the committee, said: "I'm not a lawyer. Maybe it's something that needs to be tested in the courts." James Roberts, a partner at BDO LLP one of the biggest firms outside the Big Four welcomed the report. "BDO has been arguing the case for significant change in the oligopolistic audit market for many years," he said. "We're delighted that the committee has reached the same conclusion that significant change is desired, required and inevitable."

The three firms that audit the banks defended their role in the financial crisis. PwC said it "spoke to and wrote to the FSA re Northern Rock on 11 September 2007 to report our concerns about the bank's lack of liquidity as soon as we became aware of the issue". That was only two days, however, before the bank asked for emergency support. Pauline Wallace, head of public policy at PwC, admitted that since 1997 "it ceased to be the norm" for audit firms to be in regular dialogue with the authority responsible for supervising the banks. A KPMG spokesman said: "KPMG rejects the committee's allegations of any 'dereliction of duty' or 'complacency' with regard to its bank audits nor did we make assumptions about Government support for specific institutions when concluding on 'going concern' questions."

The committee also raised concerns that there could be even less choice in the auditing market if the Big Four were reduced to just three as a consequence of another withdrawal from the market as was the case with Arthur Andersen following the Enron accounting scandal.

About bloody time, talk about a pox on all our houses, the big four are responsible for all the time wasting form filling that everybody involved in audits now has to comply with regardless of the size of the organisation being audited. Yes there are opt outs when it comes to reporting discolosures for small companies but that's after you've done the work. I was at a clients yesterday explaining the new regulations that came into force on 15th December last year and after we had run through one of two new forms that he has to fill in he simply said, "Fucking hell, what a waste of time." This is a family company, no outside shareholders, no external borrowings and yet for audit regulation purposes it is treated exactly the same as the largest company in the country. The only concession to its size being that its audit fee is considerably smaller.

Every piece of legislation from the Money Laundering Act to the Proceeds of Crime Act can be traced back to the sheer incompetence and arrogance of these four firms. Let's hope that they get the kick up the arse the rest of the profession is hoping for.