Firms could be forced to retender audit services every five years

21 July 2013

☛ Want the latest procurement and supply chain news delivered straight to your inbox? Sign up for the Supply Management Daily

22 July 2013 | Will Green

The Competition Commission (CC) has warned all FTSE 350 companies could be required to put audit services out to tender at least every five years.

In a provisional decision published today concerning its investigation into the supply of audit services, the CC says regulator the Financial Reporting Council should review every audit engagement among FTSE 350 firms on average every five years and there should be a ban on ‘big four-only’ clauses in loan agreements.

Previously the CC has declared competition in the audit market to be “restricted” due to “factors which inhibit companies from switching auditors” and incentives auditors have to focus on “satisfying management rather than shareholder needs”. 

The CC calls for shareholder votes on audit committee reports and recommends measures are introduced to strengthen links between audit committees and external auditors, with a reduction in management influence.

Laura Carstensen, chairman of the Audit Market Investigation Group, said: “This is a comprehensive set of measures that will ensure that shareholders are better served by a more competitive market for statutory audit which is more responsive to their requirements.

“More frequent tendering will ensure that companies make regular and well-informed assessments of whether their incumbent auditor is competitive and will open up more opportunities for other firms to compete.

“A more dynamic, contestable market will reduce the dangers that come with over-familiarity and long, unchallenged tenures.

“While there are costs involved in going out to tender, we think that they are outweighed by the benefits of a more competitive market in which shareholders can have increased trust.”

The CC says it is aware of similar work taking place on an EU level concerning the audit market but “there are as yet no definitive EU proposals, and we have therefore proceeded on the basis of the evidence produced by our enquiry”.

The Office of Fair Trading referred the audit market to the CC for investigation in October 2011. A final report will be published in October.

GBP55000 - GBP65000 per annum +
Bramwith Consulting
GBP70000 - GBP90000 per annum + Benefits
Bramwith Consulting
CIPS Knowledge
Find out more with CIPS Knowledge:
  • best practice insights
  • guidance
  • tools and templates