Reforms Within the UK Audit Market

In the UK, the auditing market is largely dominated by the "big four" firms- EY, KPMG, PricewaterhouseCoopers and Deloitte, which audit 90% of the UK's largest stock market-listed companies. After being criticised during the financial crisis for not doing enough to warn companies and then a two year inspection of the market by the Competition Commission, reforms have been published that will allow for greater competition within the auditing market. 

On the 15th October, the Competition Commission published it's final report on its statutory audit services market investigation which ruled that major UK-listed companies must allow accountancy firms to bid for (tender) their audit work every ten years. The CC had at first planned to allow auditors to compete every five years for FTSE-350 companies (the largest 350 companies by capitalisation, which have their primary listing on the London Stock Exchange), but the head of the Commission's investigation stated that after listening carefully to both shareholders and the Financial Reporting Council (the regulators of the audit industry), ten years seemed the appropriate backstop period.

The CC recommends, however, that companies go out to tender every 5 years and if companies choose not to this frequently, the Audit Committee will be required to report which financial year it plans to put the audit engagement out to tender and why this date is in the best interest of shareholders. The Financial Reporting Council's Audit Quality Review team will review every audit engagements in the FTSE 350 every five years (on average).

The aim of this reform was to open the door to other auditors, giving them a better chance to regularly compete for business. The impact this reform has on the auditing market on the UK may not be seen for several years, but it is the beginning of further potential changes within the market, as the EU proposes the mandatory switching of auditors and is also investigating the audit industry. 

Understanding the Competition Commission

The Competition Commission is a body I'd come across in studying Economics and on the news on numerous occasions before now, but had never been informed of its purpose within the economy. After recent news of the Competition Commission's audit market reforms, I thought it necessary to research the CC's roles.

The Competition Commission (CC) is an independent public body with an aim of ensuring healthy competition between companies in the UK for the ultimate benefit of consumers and the economy. In order to do so, it conducts investigations of great depths into mergers and markets. 

A merger is the combining of two firms on roughly equal terms into one new legal entity. If the merged entities were competitors, the merger is called horizontal integration, if they were supplier or customer of one another, it is called vertical integration. They are referred by the Office of Fair Trading (OFT) to investigate whether there is a realistic prospect that a merger will lead to a substantial lessening of competition. If such a prospect exists, the merger will be referred to the CC (unless the merging party addresses the concerns of the market is sufficient of importance). Once referred to the CC, the Commission can address the concerns by exercising their powers, for example through requiring a company to sell off part of its business or by preventing a merger from going ahead. 

A market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The buyers must have something they can offer in exchange for there to be a potential transaction. The OFT investigate markets for competition problems and if there is a concern that these exist, the market is referred to the CC for in-depth investigation to decide if any feature of the market prevents competition. If features of market harming are found, the CC either introduces remedies (undertakings) itself or recommends actions by others. 

The CC also has functions regarding the major regulated industries, for example the supply of gas, electricity, water, sewerage, rail, air traffic services, airport services, postal services, electronic communications and public health care. Other authorities may refer regulatory matters to the CC, such as disputes concerning proposed price controls.

Happiness is the best measure of development.

Most people strive for economic wealth in an attempt to pursue happiness. Those who manage to succeed tend to live a comfortable life. However, for the majority of us, we always seek to achieve more. This makes us upset, miserable and unhappy. In the ruthless hunt for money huge parts of the environment are destroyed. The negative externalities that evolve from this are far greater than what some may realise. This is where the concept of GNH (Gross National Happiness) came about. The ideology behind it is that, every human being aspires for happiness, therefore countries should be measured in terms of citizen happiness. 

GNH is based around nine main indicators which are broken down into categories of further detail. These indicators include: Living standards, Psychological Well-being  Ecological Diversity and Resilience  Community Vitality, Good Governance, Cultural Diversity and Resilience, Education, Time Use and Health. Research into "What makes people happy?" evidently showed being around people with similar interests and through supporting local traditions and cultural heritage led to both a stronger community feeling and increase in positive energy. 

GDP (Gross Domestic Product) can be defined as:

"The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory."

For most data comparisons this measurement is used. The benefits are that it can assess all aspects of the economy, such as investment and government expenditure, while other methods don't. Also, if Real GDP is used then inflation rates are not accounted for and true values of growth can be measured. This is all well and good for finding out how productive an economy is, but, what it doesn't determine is the happiness of an economy. 

This leads me on to ask the question, are these so-called developed countries as advanced as they seem? Or, are such renowned measures equivocating in order to hide the truth behind a melancholy nation?