Watchdog climbs down over accounting reforms

THE UK has pulled back from accounting reforms that would have forced top companies to change book-keepers every five years.

The move puts regulators potentially at odds with tougher reforms which are likely to be introduced across the European Union. The reforms are part of a regulatory clampdown following the financial crisis.

Auditors had given banks a clean bill of health just before many had to be rescued by taxpayers. Critics have also said the ‘Big Four’ accountancy groups have developed too-cosy relationships with top company executives, and there has not been enough competition in the market.

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Under proposals released yesterday by the UK Competition Commission, the top 350 UK companies would be forced to put their book-keeping out to tender at least once a decade, to shake up a market dominated by KPMG, PricewaterhouseCoopers (PwC), Ernst & Young (EY) and Deloitte.

The Big Four firms employ a combined total of 2,000 people in Yorkshire.

However, the changes, which would take effect from the final quarter of 2014, don’t include an earlier draft recommendation that would have forced companies to re-tender their audit work every five years. The competition watchdog shied away from a much tougher option: forcing companies to change their accountant on a regular basis, a step the EU is believed by some analysts to be considering.

David Barnes, managing partner at Deloitte UK, said the audit market had changed since the competition watchdog began its probe two years ago, with more tenders taking place.

Ian Morrison, partner and PwC’s northern head of assurance, said: “The Competition Commission’s decision to mandate tendering every 10 years recognises strong concerns from investors, the Financial Reporting Council, companies and the market that a five-year interval would have created a disproportionate burden to business, and risked undermining the intensity of competition and audit quality.”

Hywel Ball, managing partner for assurance at EY, said, “Overall the process and evidence over two years has confirmed that competition between audit firms is healthy and robust and that for the most part audits are done well.”

Simon Collins, UK chairman of KPMG, said: “We welcome the Competition Commission inquiry, which has brought to a head the long-running arguments and discussions over the structure of the UK audit market.”