PracticeAuditFRC may be handed audit market competition remit

FRC may be handed audit market competition remit

Competition Commission may call in FRC to support measures to break audit dominance of the Big Four

FRC may be handed audit market competition remit

UK ACCOUNTING REGULATOR the FRC could be charged with tackling a lack of competition between firms providing FTSE 350 audits, under plans outlined by the Britain’s competition watchdog.

In February, the Competition Commission published a series of potential remedies aimed at breaking the Big Four’s dominance of the large company audit market, such as forcing companies to switch auditors and giving shareholders more control of external audits.

Now the FRC could be tasked with encouraging competition from smaller firms like BDO and Grant Thornton. Yesterday, the Competition Commission said it was considering calling in the FRC to support some of its other measures.

“The further proposed remedy we are considering is to give the Financial Reporting Council a secondary duty to promote competition between firms providing audits to FTSE 350 companies,” the Competition Commission said.

This secondary duty would require the FRC, which regularly carries out audit inspections of the work of the Big Four, to report on firms’ work in a way that promotes competition. The commission expects this will instil competition by increasing transparency of audit quality reports and make a company more likely to switch auditor.

The scope of the duty would be limited, so that the FRC would not have powers concurrent with the Office of Fair Trading to enforce completion rules, the watchdog said.

According to research by Accountancy Age’s sister title Financial Director, the Big Four accountancy firms – PwC, KPMG, Ernst & Young and Deloitte – audited 334 members of the FTSE 350, based on companies’ 2011/12 annual accounts.

The commission, which found 31% of FTSE 100 companies and 20% of FTSE 250 companies have had the same auditor for more than 20 years, suggested in February that the lack of competition leads to higher prices, lower quality and less innovation for companies and a failure to meet the demands of shareholders and investors .

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