As the Lords Economics affairs committee
proudly unveiled its report today at the Houses of Parliament, the
responsibility for the audit market and the vast amount of evidence
produced has been passed to watchdog the Office of Fair Trading

The report by the UK House of Lords Economics
Affairs Committee makes several recommendations to the watchdog
that vary from suggestions to examine restrictive bank covenants,
to auditor liability and non-audit services.

One of the main reasons for all the
recommendations to the OFT is the level of reassurance and insight
available to the regulator.

“We felt like we didn’t have the sufficient
resources for our inquiry which body’s like the OFT have,” said
chairman Lord McGregor.

Lord McGregor also said that even though there
was no recommendation of breaking up the Big Four to drive
competition, the OFT may well look into the matter.

“We haven’t recommended this but people did
recommend it to us – the break-up of the Big Four – we have not
done that, but these are the issues that could be put forward to
the OFT,” said McGregor.

The UK watchdog, which now finds itself in the
centre of the discussion into the audit market said in its
statement that it is currently considering a targeted market study
into the existence and effect of UK bank covenants which could
potentially limit companies’ auditor appointment choices.

However, on a wider scale, the OFT appears to
be holding back and looking towards decisions of European

“On wider issues in the market, a key question
is whether these can be most effectively resolved by the UK
competition authorities acting alone, or through coordinated action
with international organisations, such as the OECD or the European
Union,” the OFT said.

Two issues that have already resulted in
numerous comments from the industry are the suggestions about
living wills and IFRS.

The committee said the OFT and the government
should look at living wills for the Big Four.

When asked how such a document could be
applied to an audit firm, Lord McGregor said  it would contain
a plan of how one of the Big Four would be split in case it failed
or decided to exit the market. Again, the committee suggested OFT
should make a more detailed analysis.

On the issue of IFRS and the somewhat
surprising recommendation that the use of IFRS should only apply
for large listed companies, Lord McGregor said the committee has
only put forward results indicated from evidence it received.

“Because of the concern over IFRS given to us
we wouldn’t like to see it applied for medium and small companies,”
Lord McGregor added.

From the suggestions that received praise to
the ones that have been met with concern, the committee has
gathered a vast amount of evidence which offers a unique insight
into the views and current state of the audit market.

Lord McGregor said the UK is in a unique
position to take the lead on a European and global scale by
following up the Lords work with a thorough investigation by the
competition watchdog.

Read more:

House of Lords report – IAB verdict

House of Lords report  – Industry