UK: report published - auditors: market concentration and their role

The House of Lords Economics Affairs Committee has today published its report Auditors: Market Concentration and their Role: see here. The report makes three principal recommendations:

• There should be a detailed investigation of the large-firm audit market by the Office of Fair Trading, with a view to an inquiry by the Competition Commission so that all the interrelated issues surrounding concentration, competition and choice can be examined in detail. 
• Prudence should be reasserted as the guiding principle of the audit.
• The new framework of banking supervision should provide for the bank audit to contribute more to the transparency and stability of the financial system, in particular through two-way dialogue between auditors and supervisors about the financial health of banks.

Other recommendations include requiring FTSE 350 companies to carry out a mandatory tender of their audit contract every 5 years, with the audit committee including detailed reasons for their choice of auditors in their report to shareholders; and the development of separate risk committees in banks and major financial institutions. Greater reliance on shareholder engagement is rejected by the report, it being noted (at para. 50) that:

...most shareholders appear to care little about a company's choice of auditor. It seems improbable that this apathy will soon be remedied. So measures which rely on shareholder engagement to help lessen audit market concentration are unlikely to be effective".