Big-Four-only clauses are rare: BBA

Restrictive banking covenants, which restrict auditor choice, are not
“prevalent market practice” the UK’s chief banking representative group has
said.

The BriClauses tish Bankers Association (BBA) said it is not aware of the
widespread use of restrictive covenants, inserted into credit agreements,
forcing companies to choose a Big Four auditor.

“We are not aware of it being prevalent market practice for banks or other
corporate advisers to advise or insist upon clients using a Big Four firm,” the
body said.

“In the case of established borrowers, lenders typically work with the
borrower’s existing auditors, which often will be one of the Big Four although
this is by no means always the case.”

On Thursday Accountancy Age revealed the use of the clauses, long rumoured
but rarely produced, in US credit agreements and one Spanish example quoted in
the blog of Jeremy Newman, global head of BDO.

“The parent company, although not legally obliged to do so, undertakes to
submit its individual and consolidated annual accounts to an annual audit by one
of the four most solvent and internationally renowned audit firms (the Big
Four),” the clause read.

A BBA spokesman said in the case of established borrowers, lenders typically
worked with the borrower’s existing auditors.

“The situation differs slightly in the case of leveraged loans, where the
loan agreement may stipulate that an auditor of internationally recognised
standing be used,” the spokesman said.

“Any such contractual obligation should be transparent.”

Further reading:

Restrictive
bank covenants keep the Big Four on top

Related reading

Liz Sandwith- CIIA
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