Large UK banks and corporates have warned of excessive burdens arising from the Competition Commission’s (CC) proposed five-year mandatory audit retendering for the FTSE350 in their response to the provisional remedies decision document.The Royal Bank of Scotland (RBS) said in its letter to the CC the "costs and administrative burden of mandatory retendering every five years are in our view not justified by any potential advantages".
"We are also sceptical that this remedy can help to remove the barriers that second tier firms face to becoming serious competitors in the major company audit market."Barclays said the UK Financial Reporting Council (FRC) changes to the Corporate Governance Code mandating 10-year retendering on the comply-or-explain basis should be "allowed time to take effect before introducing any further changes".
HSBC, the UK’s largest bank by asset base and which recently retendered its audit engagement from KPMG to PwC, echoed Barclays’ opinion.
"We believe the UK Code [FRC Corporate Governance Code] has the potential to have a significant impact on audit competition and should be given time to work before considering additional remedies," HSBC’s group finance director Iain Mackay wrote.
Additionally, Shell, the largest FTSE100 company, said it has "serious concerns" about the five-year mandatory tendering remedy.
Shell said carrying out a thorough auditor review process every five years "can only impact the quality of the review and therefore, the quality of the external auditor".
The company also warned the remedy might lead "audit firms to be more selective in the tenders they participate in, with the unintended consequence that the ultimate aim of greater competition may not be achieved".
The CC released the provisional remedies decision at the end of July and is expected to publish its final report in the autumn. While the CC has scrapped the unpopular idea of mandatory rotation, the five-year retendering provision came as a surprise to many due to its contradiction with the FRC Code.
The Big Four have already expressed their concerns with the remedy, while most of the mid-tier expressed support, believing it will further increase the numbers of tenders.