The regulator has acted to curb the dominance of the audit market by KPMG, Deloitte, PwC and Ernst & Young. The ‘Big Four’ audit a whopping 90% of the UK's listed companies. It doesn't end there though, the total turnover of the UK’s top 50 accountancy firms was recently revealed as £11bn - £8.35bn of which was entirely down to the Big Four.
‘More frequent tendering will ensure 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,’ said Laura Carstensen, chairman of the Audit Mark Investigation Group.
‘A more dynamic, contestable market will reduce the dangers that come with overfamiliarity and long, unchallenged tenures.’
Unsurprisingly, the big boys have had a thing or two to say about the changes, complaining tendering will increase costs for businesses and become a burdensome task.
‘Five-year audit tendering will feel relentless to many companies, audit committees and investors, who may only see audit quality damaged, rather improved, with the possible end result that the process of tendering becomes an empty box-ticking exercise, rather than a more meaningful, engaged exercise on a 10 year basis,' said Tony Cates, UK head of audit at KPMG.
Carstensen dismissed these claims, arguing the costs are outweighed by the benefits of a more competitive market.
The move by the commission is part of an ongoing investigation into the audit market, sparked by fears the Big Four and their clients have become too cozy. The firms have been accused of turning a blind eye to problems in the books of listed companies, something that exacerbated the financial crisis.
BDO, one of the auditing firms outside the Big Four, welcomed the news: ‘The rejection of mandatory firm rotation will cause some surprise, but it's our belief that the frequency of mandatory re-tendering which the Commission proposes is such that rotation would be a superfluous remedy,' said James Roberts, senior audit partner at BDO.
‘There are more than four companies that deliver quality, large-scale audits. We intend to actively pursue opportunities that mandatory re-tendering opens up,’ he added.
We should certainly hope so; such dominance is ripe for disruption. But Roberts and other smaller auditors shouldn’t hold their breath: we could be waiting up to five years before these new rules come into effect?