Share

UK watchdog scales back radical shake-up

London - Britain's competition watchdog has ditched its more radical ideas for shaking up an accounting market dominated by the "Big Four" audit firms, leaving it to the European Union to take tougher action.

Auditors are under pressure to change how they operate after giving banks a clean bill of health just a few months before several lenders had to be rescued by UK taxpayers in the financial crisis.

Britain's Competition Commission set out on Monday the changes it plans to introduce in an accounting market dominated by Deloitte, KPMG, PricewaterhouseCoopers and Ernst & Young, with the principal change being a requirement for companies to put their audit work out to tender every five years.

The Commission wants to stop "over familiarity" as some of the Big Four, who were unable to comment immediately, have served the same customers for decades.

Smaller players like Mazars, BDO and Grant Thorton find it costly to hire more accountants without some intervention to give them a better chance of picking up more work.

"The remedy package includes measures to improve the bargaining power of companies and encourage rivalry between audit firms," the watchdog said in a statement.

Britain's top 350 listed companies could defer putting out their accounting work to tender by a further two years in exceptional circumstances, it added, and the change would be phased in over five years.

It marks a hardening of a new rule introduced by the sector's regulator, the Financial Reporting Council (FRC), which has asked companies to consider once every decade putting their audit work out to tender.

BDO said the package will accelerate much needed change but there was unlikely to be "liquidity" in the market if the same small number of accountants are invited to tender.

However, there will be relief that the competition body has decided against forcing companies to actually switch auditor on a regular basis or require two auditors to check the books of a company.

The watchdog has also decided against imposing more curbs on the type of advisory work an accountant can offer a company whose books it already checks.

Next stop Brussels

Although the watchdog has rejected the mandatory switching of auditors or more curbs on their advisory work, it faces being overruled by a draft European Union law now undergoing approval.

Laura Carstensen, chairman of the Competition Commission's audit market probe, said the results of its own inquiry did not support the idea of making the switching of auditors mandatory.

"There are as yet no definitive EU proposals and we have therefore proceeded on the basis of the evidence produced by our inquiry," she said.

BDO said the rejection of mandatory switching was a surprise but frequent retendering would make it superfluous in any case.

The FRC will get powers to boost competition and be required to review every audit engagement at the top 350 companies roughly every five years.

Shareholders will also have to vote annually on whether reports from the company's audit committee contain sufficient information. Banks will be banned from inserting clauses in loans to companies that insist the auditing is done by one of the Big Four.

The plans will be put out to public consultation before being published in final form in October for implementation.

Meanwhile, in the United States the House of Representatives voted on July 8 to block the country's auditor industry watchdog from forcing companies to switch accountants.


We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
19.06
-0.8%
Rand - Pound
24.04
-0.6%
Rand - Euro
20.55
-0.4%
Rand - Aus dollar
12.37
-0.2%
Rand - Yen
0.13
-0.8%
Platinum
901.20
+0.5%
Palladium
997.97
-0.4%
Gold
2,200.01
+0.2%
Silver
24.52
-0.5%
Brent Crude
86.09
-0.2%
Top 40
68,001
+0.5%
All Share
74,204
+0.4%
Resource 10
56,476
+1.5%
Industrial 25
103,644
+0.4%
Financial 15
16,491
-0.2%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders