The UK’s audit market is likely to be referred to the Competition Commission to investigate whether it blocks new companies from taking on clients among the UK’s largest companies.
Auditors have come under scrutiny from the Office of Fair Trading over concerns that the Big Four – PwC, KPMG, Ernst & Young and Deloitte – have an unfair stranglehold over the FTSE 100.
The four largest accountants audit more than 90 per cent of the index of UK blue chips, leading to calls for greater choice and competition in that market.
The OFT has now provisionally referred the probe to the Commission for a full market investigation and will consult for six weeks to decide whether to finally do so.
“The OFT has been concerned for some time that this market is highly concentrated, with substantial barriers to entry and switching,” it said.
It now needs to explore what remedies or concessions the companies may be able to offer that would materially address this concentration.
“We believe at this time that a reference to the Competition Commission is an appropriate response to our long-standing competition concerns in this market,” its executive director Clive Maxwell said.
UK top ten accountancy firms welcomed the news.
BDO senior audit partner James Roberts said BDO, a top ten UK accountant, was "delighted by the OFT’s decision."
“We have long maintained the need to remedy the lack of competition in the audit market and our heritage in this debate is long-standing. We look forward to confirmation of the market investigation reference in September, which will avoid any fall in momentum, now that change in the larger audit market is so widely welcomed," he said.
But Deloitte voiced concerns that action could affect the standard of auditing.
“Any changes to the audit market must not be to the detriment of audit quality and should not harm the UK’s competitive advantages as a business location and centre for capital market activity. We will be responding to the OFT’s consultation,” it said in a statement.