Posted on 27/07/2013 by Ryan Lamb
The Competition Commission has announced new plans for the audit market, in a bid to curb the dominance of the big four accountancy firms. The changes will mean accountancy practices will now bid for the audit work of major UK-listed companies every five years. This new process will aim to give firms outside of the top four, more access to the market, as currently 90% of the UK’s largest stock market-listed companies are audited by KMPG, Deloitte, PwC and Ernst and Young.
The Commission’s report is part of an ongoing investigation into the audit market, after the industry was criticised for the part it played in the financial crisis; accused of doing little to caution companies and scrutinise banks. The new plans will endeavour to create a market, where companies are conscious of their options and where firms will have to regularly demonstrate their capabilities.
There are further potential plans to extend the powers of the industry regulator, the Financial Reporting Committee, by allowing it to examine audit relationships every 5 years, at the top 350 companies. Shareholders will also be given more autonomy to decide proper practice, having the option to vote whether annual reports are of the correct standard and contain a sufficient amount of detail.
Opposition to the plans is evident amongst the big 4 firms, with senior members noting the changes may have negative effects on the audit market. There is concern that tendering will become more of a hollow check-list exercise, as opposed to the existing method of a significant and fresh process every 10 years. Furthermore, many say the cost of tendering for business more frequently will be very high, therefore potentially leaving smaller firms unable to compete with those with larger funding.
There is criticism that smaller firms will not be best placed to tender for work within many industries, where the accounts will be far too intricate and large to manage effectively. Those who will benefit most from the changes are likely to be firms outside the top 4, but still within the top 10; these are the firms that could still provide the manpower and combined experience to deliver quality on larger audits.
There is still uncertainty as to exactly which plans will be implemented, but with The European Union currently also investigating the audit market, what is clear is the industry will be at the centre of controversy and discussion for the foreseeable future.
Charlotte Garfield, Consultant