The lack of competition within the audit market is likely to lead to higher prices, lower quality and less innovation for companies along with a failure to meet the demands of shareholders and investors, according to the Competition Commission’s (CC) provisional findings published today.

The findings showed that audit firms outside the ‘Big 4’ which dominate the market are finding it increasingly difficult to win the audit engagements of FTSE 350 companies.

Statistics revealed that 31 per cent of FTSE 100 companies and 20 per cent of FTSE 250 companies have had the same auditor for over 20 years. Sixty-seven per cent of FTSE 100 companies and 52 per cent of FTSE 250 companies have had the same auditor for more than ten years. Often, the auditor focuses too much on senior management and does not protect the interests of the shareholders.

The Audit Investigation Group chairman Laura Carstensen said that “audit firms naturally focus more on meeting management interests” thus resulting in a “static market”.

She added: “It is clear that there is significant dissatisfaction amongst some institutional investors with the relevance and extent of reporting in audited financial reports. This needs to change so that external audit becomes a more genuinely independent and challenging exercise where auditors are less like corporate advisors and more like examining inspectors.”

Share Story: