The Competition Commission (CC) has proposed that FTSE 350 firms need to tender their statutory audit for at least every five years and prohibited ‘Big-4-only’ clause in loan documentation, as part of its measures to improve the bargaining power of firms in hiring auditor of their choice and encouraging competition between the audit firms.
Almost 90 per cent of the auditing work of UK’s large companies is done by KPMG, Deloitte, PricewaterhouseCoopers (PwC) and Ernst & Young.
CC, in a statement, said that there will be a transitional period of five years before the measure comes into full effect.
Laura Carstensen, chairman of the Audit Market Investigation Group, said: “More frequent tendering will ensure that companies make regular and well informed assessments of whether their incumbent auditor is competitive and will open up more opportunities for other firms to compete. A more dynamic, contestable market will reduce the dangers that come with over-familiarity and long, unchallenged tenure.
“We think that a five-year period is an appropriate period to subject the engagement to scrutiny and challenge - and it is also aligned with existing FRC guidelines on rotating the Audit Engagement Partner, making it an appropriate time to put the service out to tender.”
The independent government body, as part of its measures, also proposed to increase the influence and responsibilities of the audit committee, as it found that finance directors have considerable influence over the audit relationship in practice despite the formal authority of audit committees.
A final report on the supply of statutory audit services to big firms in the UK will be published in the coming autumn.