Competition inquiry for audit market
by Gill Montia
Story link: Competition inquiry for audit market
The UK’s “big four” auditors face an inquiry, following a decision by the Office of Fair Trading (OFT) to refer the UK’s market for statutory audit services to the Competition Commission (CC).
The watchdog says it has been concerned for some time that the market is highly concentrated, with low levels of switching and barriers to entry.
According to the OFT, PricewaterhouseCoopers, KPMG, Deloitte and Ernst & Young between them earned 99% of audit fees paid by FTSE 100 companies last year.
Furthermore, between 2002 and 2010, the average annual switching rate among FTSE 100 companies was just 2.3%.
The referral follows a number of meetings between the OFT, auditors, customers and regulatory bodies, during which issues were raised regarding the potential for overlap between a CC inquiry and parallel work taking place in Europe.
However, with neither the nature, content or timing of EU legislation settled, the OFT believes a CC inquiry could contribute to the European process, while at the same time addressing UK-specific concerns that may not be within the scope of the EU’s work.
OFT chief executive, John Fingleton, comments: “Voluntary and industry-led efforts to increase competition and choice in this market have proved unsuccessful.”
The role of statutory auditors has also recently been scrutinised by the Financial Reporting Council (FRC) which is demanding that company reports contain more information from audit committees and auditors about challenges and judgments made, particularly in the area of loan impairments.
Proposals from the FRC include a requirement for companies to put their audits out to tender at least once in every ten years.