Watchdog orders changes in accounting market

The Competition Commission published its final report today following a probe into Britain’s audit market and pulled back from an earlier draft recommendation that would have forced companies to re-tender their audit work every five years.

The watchdog had faced opposition from companies, their shareholders and the accounting sector’s regulator, the Financial Reporting Council (FRC), which has just introduced a rule requiring firms to consider re-tendering at least once a decade or explain why there is no change.

”Our measures will deliver lasting change in a market where currently a major company putting its audit out to tender remains unusual enough to be a news story,” said Laura Carstensen, who chaired the Competition Commission’s probe.

It also shied away from a much tougher option: forcing companies to actually change their accountant on a regular basis, a step the European Union is likely to introduce in any case.

The package of reforms will come into force from the last quarter of 2014.

The Big Four accountants - KPMG, PwC, EY and Deloitte - check the books of most blue-chip companies across the world. Many top firms have kept the same accountant for decades.

“No company will be able to delay beyond 10 years, and the Competition Commission believes that many companies would benefit from going out to tender more frequently at every five years,” the watchdog said in a statement.

While ceding ground on re-tendering, it confirmed a draft recommendation that the FRC should review the audit engagement for each of the 350 companies on average every five years, a heavy undertaking for the regulator.

The FRC should also expand its remit to include competition as an objective, confirming a recommendation made at the draft stage which had also raised concerns at a regulator with modest resources.