A close fight is now in prospect for the top spot in the Irish accountancy profession, after KPMG and Ernst & Young abandoned plans to merge. The merger would have led to the creation of a clear "number one" in Ireland, but now KPMG will have to compete for the top spot in with Price Waterhouse (PW) and Coopers & Lybrand, who are still on course to merger. The $16bn global merger of KPMG and Ernst & Young was abandoned abruptly, ending plans to build the world's biggest accountancy firm. The difficulty and cost of getting regulatory approval was cited as the reason it had been abandoned.

The sudden collapse of the deal, which would have created a firm dominating the sector internationally, leaves the rival merger plan of Price Waterhouse and Coopers & Lybrand a clear front-runner to win regulatory approval in Brussels and Washington.

In Ireland a merger of KPMG and Ernst & Young would have created a clear "number one" in the market, with an estimated annual fee income of over £70 million and a staff of 1,400. However with the merger now abandoned, the alliance between PW and Coopers & Lybrand would, on 1997 figures, have had larger fee income than the current "number one", KPMG.

Finance magazine figures show that the two combined would have £53 million in fee income, above KPMG's £43 million for last year. However, KPMG has been experiencing strong growth and is now believed to have income running at an annual level of some £50 million. The news is understood to have come as a surprise to the two companies in Ireland, who had commenced discussion on their merger plans. Reacting to the decision last night, Mr Jerome Kennedy, managing partner of KPMG, said that KPMG is experiencing strong growth and it would now concentrate on its own expansion plans for the market. It would be "business as usual", he said.

Mr John Hogan, managing partner of Ernst & Young, said: "It is a disappointing outcome." However, the company's priority was always that the process would not disrupt client service audit would now get on with its business in Ireland. However, in Ireland and internationally, rather than the "big six" firms becoming the " big four" after two mergers, there will be five groupings, although further mergers cannot be ruled out.

Internationally, Mr Colin Sharman, prospective head of KPMG-E&Y, said that the deal had run into increasing regulatory concerns.

"The dislocation and the costs meant we had to look at it again. It was better it call it off now rather than struggle on and then get a `no' from regulators," he said.

It is reported that E&Y may have precipitated the collapse. A meeting this week in Grand Cayman discussed clashes between the cultures of the two firms and resistance from clients.

The decision should increase the chances that the Price WaterhouseCoopers & Lybrand merger will obtain regulatory approval. Competition regulators in Brussels and Washington had been looking at the mergers in parallel and there were doubts they would allow the so-called Big Six accountancy firms to become the Big Four.