New audit rules to come into force
Published 15/10/2013 | 13:36
Britain's biggest 350 companies must put their book-keeping work out to tender at least every 10 years under plans by competition bosses to shake up the audit market.
The new rules, which are expected to come into force in the final quarter of next year, have been seen as a victory for the "big four" accounting giants after the Competition Commission watered down earlier proposals to order auditors to bid for work every five years.
It had already scrapped initial plans to force major UK listed companies to switch accountants regularly.
Smaller accounting firms hit out at the watchdog's final recommendations, branding the report a "missed opportunity" to break the stranglehold of the market's dominant players - Deloitte, PricewaterhouseCoopers, KPMG and EY, formerly known as Ernst & Young.
But the Competition Commission said its changes will open up the audit market to greater competition and deliver "lasting change".
Currently the vast majority of the FTSE 100 Index of listed companies use one of the big four accountants and almost a third have used the same auditor for more than 20 years.
Under the commission's rules, firms will be banned from restricting tenders to only the big four and the Financial Reporting Council (FRC) will have beefed up powers to review every FTSE 350 audit every five years, with details to be passed on to shareholders.
The FRC will also include competition as one of its objectives.
Laura Carstensen, who chaired the inquiry group, said the new rules will "open the door" to mid-tier accounting firms to bid for work and also benefit shareholders, who will have a greater say and be better informed on audit work.
She added: "Our measures will deliver lasting change in a market where currently a major company putting its audit out to tender remains unusual enough to be a news story."
Ms Carstensen insisted that mandatory switching could reduce choice in tenders, by excluding the incumbent from bidding.
Sir Michael Snyder, senior partner at accountancy firm Kingston Smith, slammed the decision not to introduce mandatory switching.
He said: "This is a missed opportunity to give the larger listed audit market the shake up it badly needs and increase the number of participants.
"Mandating shared audit would have allowed other firms to start to break the Big Four's dominance by giving them a direct opportunity to build capacity for working on larger listed audits."
Fiona Hotston Moore, a senior partner with City accountants Reeves, added the move was "highly disappointing".
"Merely forcing firms to retender is unlikely to extend audit competition or reduce the stranglehold of the big four firms," she said.
But it is thought that the European Union may introduce tougher rules, such as mandatory switching, in the next few years as part of its own investigation of the industry.
The UK's investigation was launched after the industry was heavily criticised in a report by a House of Lords committee over conflicts of interest and the quality of published accounts in the run-up to the credit crunch.