The changes follow the Competition Commission’s (CC’s) report into the market published last year which set out changes to open up the UK statutory audit market to greater competition and ensure that audits better serve the needs of shareholders in future. The order includes:
a requirement for FTSE 350 companies to put their statutory audit engagement out to tender at least every 10 years
measures to strengthen the accountability of the external auditor to the Audit Committee and reduce the influence of management
Work to finalise these measures was delayed to ensure harmonisation with the European Commission’s own work to reform the audit market. The measures will come into force by the end of the year.
Laura Carstensen, who chaired the investigation, said:
It’s vital that shareholders have confidence that auditors are providing an independent and sceptical assessment of a company’s accounts. More regular switching not only opens up the market to greater competition but also reduces the long tenures that can reduce the appearance of objectivity.
Our measures to strengthen the role of audit committees will underpin the importance of an external assessment that serves shareholders not management. We’ve seen more companies switching auditor in the last 12 to 18 months than ever before so our measures will ensure that such progress continues and that other ‘mid-tier’ firms get more opportunities to get a foothold in the market.
In its final report, the CC found that competition is 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.
Notes for editors
The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. From 1 April 2014 it took over the functions of the CC and the competition and certain consumer functions of the Office of Fair Trading (OFT), pursuant to the Enterprise and Regulatory Reform Act 2013.
The OFT referred the market to the CC for investigation in October 2011. The CC published its final report in October 2013. The CMA took over the task of finalising the remedies from the CC at the start of April 2014.