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