UK's biggest companies face audit shake-up
UK competition bosses today ordered accountants to bid for work at Britain's biggest companies every five years under plans to shake up the market.
However, the UK's Competition Commission stopped short of ordering major UK listed companies to switch accountant regularly, instead insisting they must only re-tender audit services.
The package of provisional reforms aims to shake up the relationship between Britain's 350 biggest companies and the "big four" accountancy firms - KPMG, Deloitte, Ernst & Young and PwC - and allow smaller firms to break their stranglehold.
The watchdog will ban certain clauses restricting firms to only using the big four accountants, as well as give shareholders a vote on whether auditors are telling them enough about the company in the annual report.
Laura Carstensen, who chaired the inquiry group, said the plans will increase choice and ensure big four and mid-tier accountants have more incentive to improve in order to win work.
She said: "A more dynamic, contestable market will reduce the dangers that come with overfamiliarity and long, unchallenged tenures."
She insisted enforced re-tendering rather than mandatory switching is an "effective and proportionate" way to boost competition.
The Commission added enforced switching would actually weaken competition by excluding the incumbent from bidding.
Ms Carstensen said: "We do not see a competition problem with audit firms retaining business if they do a good job - but they will have to demonstrate this on a regular basis."
The reforms will affect Britain's 350 biggest listed companies, but will not come into effect for five years. Companies will be able to defer re-tendering for up to two years in exceptional circumstances.
Accountancy watchdog the Financial Reporting Council (FRC) will also review every FTSE 350 audit every five years, with details to be passed on to shareholders.
The Commission also plans to restrict retendering and negotiation of fees to companies audit committees - in a bid to break finance directors' influence on appointing accountants.
It said while costs will increase by up to £30m a year for companies and accountants, the reforms will boost shareholder value.
The competition watchdog started its probe after the industry was heavily criticised in a report by a British House of Lords committee over conflicts of interest and the quality of published accounts in the run-up to the credit crunch.
The Commission will publish its final report by late October.
