The UK government has expressed serious concern over the lack of competition in the audit market and plans to address the issue by improving the transparency and disclosure of audit committees, the HoL audit market inquiry was told employment relations minister Ed Davey.
“We have some serious concerns regarding competition in terms of lack of choice and high fees,” Davey said
The House of Lords economics affairs committee was also told that the government does not plan to make radical regulatory actions to de-concentrate the market.
“We are not attracted to use very regulatory approaches. A heavy handed approach is not our first approach,” said Davey.
The government plans to ensure greater transparency and disclosure of companies over their audit committees by gathering information on adopting an auditor, how long the firm has used its existing auditor and what its policies are on testing the market, Davey said.
“Greater transparency in these areas might encourage auditors to look again at their auditors and for investors to have this information so they can challenge the audit committee,” Davey explained.
Davey also said the government does not see the possibility of systemic risk in the market. “I should say that some of your witnesses have suggested there is a huge systemic risk here. I’d like to say that we don’t see this that way. Partly because audit is only a part of the assurance that investors can have,” Davey said.
The HoL committee has expressed concern over the planed government actions and the belief that there is no systemic risk.
Committee member Lord Forsyth said the government appears to be too complacent on the issue of market concentration.
Committee chair Lord MacGregor said the committee is very aware of some of the difficulties facing the next tier of firms in competing in the Big Four market. “I have to say I’m not sure there are possibilities without helping the system to solve this problem,” Lord MacGregor said.
The House of Lords economics affairs committee is expected to present its final report and recommendations to the government in the spring.