A summary of the Commission's preliminary findings is available here (pdf) and the full preliminary findings report will be published shortly. Possible remedies are outlined and include mandatory tendering, mandatory rotation and greater shareholder engagement: see here (pdf). The following features of the market have been identified by the Commission:
- Barriers to switching: [i] Companies face significant hurdles in comparing the offerings of an incumbent firm with those of alternative suppliers other than through a tender process, [ii] It is difficult for companies to judge audit quality in advance due to the nature of audit; [iii] Companies and firms invest in a relationship of mutual trust and confidence from which neither will lightly walk away as this means the loss of the benefits of continuity stemming from the relationship.
- Company management face significant opportunity costs in the management time involved in the selection and education of a new auditor.
- Mid Tier firms face experience and reputational barriers to expansion and selection in the FTSE 350 audit market.
- Auditors have misaligned incentives, as between shareholders and company management, and so compete to satisfy management rather than shareholder demand, where the demands of executive management and shareholders differ.
- Auditors face barriers to the provision of information that shareholders demand (in particular from the reluctance of company management to permit further disclosure).