Competition Commission waters down audit reforms
Competition watchdog retreats from contentious plans and imposes ten year audit tendering rules
ACCOUNTANCY FIRMS will have to compete for the audit work of Britain’s largest listed businesses every ten years, under less draconian measures published by the Competition Commission today.
The competition watchdog retreated from its highly-contentious requirement that FTSE 350 companies allow auditors to compete for their work every five years in favour of an approach more closely aligned to guidelines adopted by the FRC.
In a summary of its final report, the commission said it had “listened carefully” to opponents of its original proposals, which had been criticised as disproportionately costly and likely to result in a sham process by companies and their auditors.
Members of the profession voiced their support for the ten-year ‘comply or explain’ measures implemented by the FRC last year on the basis that attitudes to audit tendering were already beginning to change among large corporates.
However, the commission differs from the FRC in that companies will have to mandatorily tender every ten years, while those that tender less frequently than five years will be required to report in which financial year it plans to put the audit engagement out to tender.
“While we think many companies would benefit from a greater frequency of five years, we have accepted that requiring this in all cases could dilute the benefits we all want to see,” said Laura Carstensen, chairman of the audit market investigation group.
“The introduction of regular and predictable tenders will benefit shareholders, who will also have a much greater say and knowledge of whether their needs as customers are being met.”
Carstensen added that the rules would “open the door to other auditors who now have the chance to compete regularly for business and show they’re up to the mark”.
“This will help them prepare for and counter any perceived lack of experience, resources and reputation which may have hindered them from winning FTSE 350 audit engagements in the past. In effect they will more frequently be able to compete on a level playing field.”
Scott Barnes, CEO of Grant Thornton, agreed that the proposals would help the firm develop “”deeper relationships” with FTSE 350 boards across “selected sectors”.
Under the new rules, the FRC’s Audit Quality Review team will review every audit engagement in the FTSE 350 on average every five years.