The UK government has called for a review into
whether legal clauses in bank lending agreements are restricting
audit market competition.
In this year’s budget, ‘A plan for growth’,
the Office of Fair Trading (OFT) will investigate Big Four only
clauses and if these unfairly and inappropriately restrict
competition. The competition watchdog has also been asked to
investigate whether their removal would allow the next tier of
audit firms to compete for large scale audits.
An OFT spokesperson said it has been reviewing
the audit market since 2002 and will make a decision on whether to
investigate concentration and restrictive banking covenants in
Grant Thornton UK partnership oversight board
chair Steve Maslin said the OFT investigation would create further
impetus for change, following similar calls from the UK House of
Lords inquiry and the EC Green Paper on audit.
“Restrictive banking covenants, which limit
the choice of companies to appoint suitably experience auditors of
their own choosing, are anti-competitive and a major factor
preventing other audit firms from building their position in the
market,” Maslin said.
Maslin also said the problem is even more
apparent when it comes to a syndicate of banks.
“If one of the syndicate banks has those
clauses and even if three or four of the other ones don’t you have
a problem, not only does it lock us out of certain transactions,
it’s just a complete undermining of firms like ours,” he said.
Deloitte national audit technical partner
Martin Jones backed the removal of restrictive clauses, while
PwC head of public policy and regulatory
affairs Pauline Wallace said there must be no artificial barriers
to entry into a vibrant audit market.
BDO International chief executive Jeremy
Newman added: “I hope that the OFT looks widely at the issue of
restrictive covenants including those that are ‘Big 4 only’ clauses
disguised as ‘experience requirements’, which only a Big Four firm