The Office of Fair Trading (OFT) has
competition concerns about the UK audit market and will consult
audit industry stakeholders on practical remedies to reduce
concentration.
The OFT said it has been “concerned for some
time that the market for external audit services to large firms in
the UK is highly concentrated, with substantial barriers to entry
and switching”.
Recently tasked with investigating audit
market competition by the UK House of Lords Economic Affairs
Committee, the OFT will hold round tables and bilateral discussions
with industry stakeholders in May and June.
“We believe that the statutory test for a
Competition Commission reference has been met, but are keen to
understand more about the remedies available in the market and,
consequently, whether or not a reference to the Competition
Commission would be an appropriate response to our concerns,” OFT
executive director Clive Maxwell said.
“Our next step is to discuss this with
regulators, government, business and the audit industry.”
The provisional decision on whether or not to
refer the audit market to the Competition Commission will be
subject to a statutory consultation later this year.
The announcement will be viewed as positive
for non-Big Four firms who have been calling for market
intervention to even the playing field of large listed audit
work.
It is conceivable that anti-competitive
measures, such as restrictive lending clauses that are biased
towards Big Four auditors, could be abolished.
What is unclear is how far the competition
watchdog is willing to go to break down Big Four dominance and
whether this is in the best interest of capital markets
participants.
