THE COMPETITION Commission has stopped short of forcing companies to regularly change their auditor, in a package of planned reforms that has split the accountancy profession.
Smaller auditors yesterday called for the watchdog to go further, while the so-called Big Four firms warned of the red tape that could come with plans to force FTSE 350 companies to put their audit contracts out to tender at least every five years.
The Competition Commission’s provisional plans to open up the audit market also include a ban on firms using “Big Four Only” clauses in loan contracts, and giving investors a vote on whether a firm’s yearly audit committee report is informative enough.
The watchdog also wants to make the pitching process more transparent, to ensure smaller firms are not excluded.
The proposals are less radical than the reforms being debated by the European Union, but go beyond the measures introduced by the Financial Reporting Council earlier this year.
The FRC and several larger auditors raised concerns that the CC’s plans will increase costs.
“[Mandatory tendering] is not in the public interest and will likely only serve to increase the financial burden on companies at a time of ongoing economic uncertainty,” said Hywel Bell, managing partner for assurance at EY.
But many smaller firms called for more action to grant them access to the market. Ninety-nine firms in the FTSE 100 use one of the Big Four for their audits, with many using the same auditor for other consultancy work.
“We have just been through our worst financial crisis for generations and there is a public expectation that robust audit reform will be high on the agenda. Further action is needed to create a level playing field for new entrants into the FTSE 350 market,” said David Herbinet, head of public interest markets at Mazars.
The Commission’s final report is due by October.