New measures to promote competitive audit market
The Competition Commission has put forward a package of measures to promote competition among auditors to large UK firms, and promote shareholder engagement in the audit process.
Key measures proposed are as follows:
- FTSE 350 companies should put their statutory audit engagement out to tender at least every five years.
- The Financial Reporting Council’s (FRC’s) Audit Quality Review team should review every audit engagement in the FTSE 350 on average every five years.
- A prohibition of ‘Big-4-only’ clauses in loan documentation (i.e. clauses that limit a company’s choice of auditor to a preselected list).
- A shareholders’ vote on whether audit committee reports in company annual reports contain sufficient information.
- Measures to strengthen the accountability of the external auditor to the audit committee and reduce the influence of management, including a stipulation that only the audit committee is permitted to negotiate and agree audit fees and the scope of audit work, initiate tender processes, make recommendations for appointment of auditors and authorize the external audit firm to carry out non-audit services.
- The FRC should amend its articles of association to include a secondary objective to have due regard to competition.
Laura Carstensen, chair of the Audit Market Investigation Group, comments: “A more dynamic, contestable market will reduce the dangers that come with overfamiliarity and long, unchallenged tenures.”