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.