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December 7, 2011

UK competition watchdog reveals investigation blueprint

The UK Competition Commission has outlined the areas it will investigate in its probe into statutory audit market concentration for listed companies.

In its initial issue statement, the commission said the body will look at any “features of this market which prevent, restrict or distort competition and, if so, what action might be taken to remedy them”.

The commission has spent the past couple of months gathering information, views and evidence to develop a scope for the investigation.

In October, the Office of Fair Trading (OFT) recommended the watchdog investigate the market after concluding it is highly concentrated “with low levels of switching and substantial barriers to entry”.

In a similar vein to the House of Lords audit inquiry and the OFT’s own investigations, the commission is to look at suboptimal audit quality and levels of innovation due to concentration, higher prices and costs due to intense competition, and the effects of offering non-audit services to audit services.

The Big Four has already issued opinion letters, defending the level of competition in the market as “sufficient and reflective of client needs”.

Yesterday, PwC UK board member for reputation and policy Richard Sexton said the commission’s statement reveals the body relied heavily on input from the OFT.

“We do not believe that the OFT analysis provided an accurate picture of the nature and level of competition in this market,” he said.

“We remain convinced that the thorough analysis of the audit market which the Competition Commission is about to perform will demonstrate that this is a highly competitive market”.

The commission will issue its final report on audit market concentration on 20 October 2013, although it will aim to complete the investigation sooner. 

 

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