OFT is on the audit case - hopefully.
The OFT is on the case. That’s the upshot this week from the Budget which saw news that the government has called on the Office of Fair Trading (OFT) to look at an increasingly controversial issue in the audit market – restrictive clauses imposed by banks.
These clauses are often included by banks in credit agreements and force clients to use a Big Four firm as part of the conditions in covenants.
Mid-tier firms have argued for some time that such clauses skew the market for audits forcing most publicly quoted companies into the arms of Big Four auditors.
However, the government’s call at last acknowledges in part that the clauses could be a problem.
Until recently such clauses were viewed as something of a mystery with everyone claiming they were wrong but many insisting their use was unlikely to be widespread. Companies, on the other hand, have been reluctant to reveal what they have or haven’t agreed.
An OFT investigation would therefore be welcome and is, in fact, overdue. It would be the first step to clearing up the issue once and for all and acting upon any conclusion drawn. Other regulators, namely the Financial Reporting Council, have talked a good game on restrictive clauses and the audit market in general, but have produced little by way of any progress. Any progress at all.
Oddly, we hear that the OFT has not yet decided to push ahead with the inquiry. It won’t do that until a board meeting in April. Having been asked by government however, they could hardly turn the invitation down.