THE OFFICE OF FAIR TRADING has today referred the audit market to the Competition Commission.
The OFT referral has a particular emphasis on large company audits in the UK. The decision to make a market investigation referral follows a public consultation involving several audit firms and regulatory bodies, which closed in September.
A statement from the OFT said it had been concerned for some time the audit market is highly concentrated, with few changes of auditors as well as the continued Big Four dominance.
There were concerns from the OFT about the decision to refer the issue due to ongoing work at a European level, which could see the introduction of EU legislation.
However, the details of the EU legislation are not not finalised and the OFT felt the Competition Commission could make headway during the ongoing legislative process.
John Fingleton, OFT chief executive, said: “The market for large company audits lacks sufficient competition and does not work well for customers. It is highly concentrated, largely supplied by four big firms, with clients rarely switching between auditors. There are also high barriers to entry for new and smaller competitors. These are not the indicators of a competitive market.
“Voluntary and industry-led efforts to increase competition and choice in this market have proved unsuccessful. Following extensive consultation, we have concluded that a reference to the Competition Commission is appropriate. We believe that such an inquiry will also complement the EU’s legislative process.”
A draft green paper of the European Commission’s audit proposals is expected to take a tough line on auditors with firms to be split into audit and non-audit; mandatory rotation every seven to eight years; and joint audits between large and small providers, included in the draft.
The Competition Commission must reach a decision and publish a report on the issue within two years. However, it will aim to complete the investigation in 18 months.
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