Guest post from Robert Dohrer, RSM's Global Leader for Quality and Risk
The UK’s Competition Commission (CC) recently released its provisional decision regarding the remedies it is considering addressing the supply of statutory audit services to large companies in the UK. The final remedies are scheduled to be released in Q3 this year. In February of this year, the CC had said that competition was restricted in the audit market due to factors which inhibit companies from switching auditors and by the incentives that auditors have to focus on satisfying management rather than shareholder needs. The audit market for the FTSE 350 is almost entirely dominated by the Big 4 public accounting firms.
In February, the CC preliminarily put forth a package of remedies to address the domination of the Big 4 firms in the large company audit market that included mandatory audit firm rotation and mandatory retendering by companies for their audits, among other proposed measures. Since these types of debates began with the issuance of the European Union’s Green Paper on audit reform, RSM has been a consistent and vocal advocate for a balanced package of measures that increase audit quality and that are in the public interest.
I am pleased that some of the measures proposed by the CC will effectively address the imbalance in the supply of statutory audit services to large companies (e.g., mandatory retendering for audit services by FTSE 350 companies every five years, prohibition of ‘Big 4-only’ clauses in loan documentation, and other measures to strengthen the role of the Audit Committee in the audit process). The CC has abandoned mandatory audit firm rotation in its provisional remedies. There is concern on the part of some about whether the CC's provisional remedies are robust enough to address the initial concerns of the CC. Again, the CC’s remedies will not be finalised until Q3 this year and we will continue to advocate for a balanced package of measures that enhance audit quality and that are in the public interest.