The Office of Fair Trading (OFT) has provisionally referred the UK audit market to the Competition Commission (CC) for investigation.
The OFT’s decision, which it said is because of concern the market is highly concentrated with substantial barriers to entry and switching, is pending the outcome of a six-week consultation period.
After the OFT was asked to investigate audit market competition by the UK House of Lords Economic Affairs Committee, the watchdog announced in May it would decide whether there were appropriate remedies to the issue before it made its referral to the CC.
“We have had valuable engagement with a wide range of industry participants over the last two months and, in light of those discussions, we believe at this time that a reference to the Competition Commission is an appropriate response to our long-standing competition concerns in this market,” OFT executive director Clive Maxwell said.
“A reference would give the CC the opportunity to conduct a thorough investigation into this market and determine whether there are any adverse effects on competition. However, we will of course consider any consultation responses before making a final decision. We anticipate announcing the final decision before the end of 2011”.
In response to the OFT’s decision, Deloitte UK said while it is “supportive of all measures that enhance the quality and value of audits, and we welcome measures that increase competition” any changes to the audit market “must not be to the detriment of audit quality and should not harm the UK’s competitive advantages as a business location and centre for capital market activity.”
Institute of Chartered Accountants in England and Wales executive director of technical strategy Robert Hodgkinson has urged the CC to “subject any potential market interventions to rigorous impact assessment and ensure that audit quality is the yardstick of any decisions that are taken”.
“New regulatory initiatives will also need to be consistent with European policy developments and should not impede a highly successful sector of British business at a time when everybody should be promoting a business-led recovery,” Hodgkinson added.
Deadline for comment on the OFT consultation is 9 September.