PwC UK has found "serious failures of due process" with the UK Competition Commission’s evaluation of primary facts in relation to the statutory audit market concentration investigation.
In a letter to the CC, PwC UK’s head of reputation and policy Richard Sexton said he feels the CC has "selectively used evidence in an unbalanced way to consistently reach findings that support the theories of harm rather than the conclusion that the market is functioning effectively."
"Although the CC recognises that it is generally unrealistic to benchmark how the market is performing against the theoretical measure of a "perfectly competitive" market", Sexon continued, "this is what the CC appears to have done in this inquiry".
"The CC’s underlying assumption that auditors must either satisfy executive management or shareholders and, because executive management play an influential role in the appointment and oversight of the auditor, this must mean that auditors prefer to satisfy management rather than shareholder demand, is not supported by the evidence," Sexton wrote.
" It leads the CC to fundamentally mischaracterise the role of the auditor and fail to acknowledge the paramount duty that auditors owe to the company in the interests of shareholders."
Supporting the FRC
PwC’s response further backed the UK Financial Reporting Council’s revised Corporate Governance Code, which mandates tendering on a "comply or explain" basis every 10 years.
"We support the new FRC tendering regime which will make a very material change to the number of tenders taking place among FTSE 350 companies, with the average number increasing from about eight to ten a year to 35 a year. We agree with the FRC that this new regime should be given an opportunity to work before being dismissed as inadequate," Saxton said.
The CC said in its provisional findings that the 10 year time frame might not go far enough, and suggested time frames of seven or even five years.
Saxton also said that mandatory rotation, suggested by the CC as a proposed remedy, would reduce choice and have an adverse effect on audit quality.
"The introduction of mandatory rotation in any form would force a company to change its auditor and would deprive it of its right to make an informed choice whilst imposing costs and increasing audit risk. Because it would be forced to change, it could be faced with having to appoint an auditor that it judged would not be able to provide either the quality or cost efficiency of the existing firm."
The CC issued its provisional findings in late February and is expected to issue a final report with potential remedies to increase competition in the autumn.
All change for audits?
Comment: An interesting read
Comment: Potential impact of CC findings on EU audit reform