PracticeConsultingAuditors’ monopoly faces challenge

Auditors' monopoly faces challenge

The monopoly of accountancy firms in the audit market could be removed as a result of recommendations by the competition watchdog to end the 50% rule.

The rule – which says a majority of partners must be qualified for a firm to carry out audits – is to be targeted for reform by the government after it was criticised for restricting competition by the Office of Fair Trading in its report on the professions.

Trade secretary Stephen Byers has said the profession must come under the Competition Act, but it is clear that the concern in accountancy is that the current rules are blocking the progress of multi-disciplinary practices and consolidators headed by non-qualified managers.

The report produced by consultants for the OFT, said: ‘The rule may inhibit, for example large non-accountancy firms from entering the market through the acquisition of small high street firms. Moreover the 50% rule will inhibit the development of MDPs.’

The OFT report, published on Budget day, concentrated mostly on radical reform for the law profession and said relatively little about accountancy.

Anthea Rose, chief executive of ACCA, has nonetheless heavily criticised the report’s statistical assumptions about the profession saying the profession runs the risk of losing influence as a result.

But the report did also address issues around the rules for advertising.

It said disallowing accountancy firms from cold calling for new business, and regulations restricting the referral of business, are also inhibiting competition.

The ICAEW welcomed the report calling it a ‘detailed and considered appraisal’.

Peter Owen, executive director of professional standards at the institute, said: ‘Moves are underway to review existing guidance on advertising restrictions to bring regulation of the profession in line with accepted modern business practice.’

‘STATUS DOES NOT RESTRICT COMPETITION’

The report produced by Legal and Economic Consulting Group for the OFT raises the spectre that the ‘chartered’ status used by accountants raises many of the same issues as the title QC used by barristers. For example, that it restricts competition by being an effective demarcation between seniors and juniors.

But the LECG said it does not see a competition issue with the chartered status because it is immediately available to anyone who qualifies with one of the chartered bodies.

Links

For full details of the report see OFT website

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