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News - 15 October 2013

Audit market reforms unveiled by Competition Commission

The Competition Commission has ruled that all major UK-listed companies must allow accountancy firms to bid for their audit work every 10 years.

At the moment KPMG, Deloitte, PwC and Ernst & Young audit 90% of the UK's largest stock market-listed companies, but this means that firms will also no longer be permitted to limit those who bid for its audit work to just the big four accountancy firms.

The Competition Commission pointed out that companies do not tend to change their auditors - with almost a third of the FTSE 100 having used the same one for more than 20 years.

The watchdog has also boosted the powers of the Financial Reporting Committee, the industry regulator, by requiring it to review every audit engagement at FTSE 350 companies on average every five years.

Laura Carstensen, chairman of the Audit Mark Investigation Group.
"Our measures will deliver lasting change in a market where currently a major company putting its audit out to tender remains unusual enough to be a news story.”

The industry was heavily criticised during the financial crisis for not doing enough to warn about company balance sheets and not scrutinising banks' books in enough detail. The concern is that the relationship between auditors and company management becomes too comfortable with a "tendency for auditors to focus on satisfying management rather than shareholders' needs".

Lavinia Newman, Director of Audit for Business Development and Solutions Ltd comments:
“Laura Carstensen said that they are looking into different ways of encouraging competition in the industry. Mandatory rotation of audit firms is one idea being considered, as well as forcing companies to put the contract out to tender after a certain period. This is certainly good news for businesses seeking value for money auditors who can offer sound advice with a personal approach.”

Europe and the US are also looking into new rules for accountants. US audit regulators are also considering forcing companies to change auditors at regular intervals.

The European Commission wants to break up the Big Four, splitting their audit and their consulting businesses. Any new division would have to use a different name.

If you need any help and advice on internal and external audits and the benefits they can offer contact Lavinia Newman or Peter Ham to discuss how Audit for Business Development and Solutions Ltd can help

Audit for Business Development and Solutions Ltd: Chartered Accountants and Statutory Auditors

Tel: 023 8083 6922  E-mail: abds.audit@netaccountants.net

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