In addition, if mandatory tendering doesn't result if much difference within a few years I suspect that there will be pressure to consider mandatory rotation again. Also, we still don't know what the EU will end up doing on this issue.
The last point the CC makes below, that the FRC should amend its articles to have a competition objective, is very interesting for a couple of reasons. First, the trivial point. Obviously I know all policy people are on exactly the same page about everything and share the same overall objectives with absolutely no personal or organisational ambition affecting that whatsoever and, of course, no territoriality. But I do wonder if one regulatory body telling another what its job should be might be just a little bit unpopular.
But the more substantive point is what the CC seems to be implying - that the FRC should have greater concern about market concentration. There are those in the market who believe that the FRC is too close to, and influenced by, the big accounting firms. It does look like the CC feels the FRC needs to be a bit tougher. This point was picked up by the Telegraph yesterday, which wrote a very critical piece about the FRC that was flying around on email yesterday (will dig out a link).
Excerpt from the Commission's release -
The main measures the CC has proposed are as follows:
The CC has decided against bringing in measures requiring mandatory switching of auditors, further constraints on audit firms providing non-audit services; joint audits; shareholder or FRC responsibility for auditor reappointment or independently resourced risk and Audit Committees.
- FTSE 350 companies should put their statutory audit engagement out to tender at least every five years. Companies may defer this obligation to go out to tender by up to two years in exceptional circumstances. There will be a transitional period of five years before the measure comes into full effect.
- The Financial Reporting Council’s (FRC’s) Audit Quality Review (AQR) team should review every audit engagement in the FTSE 350 on average every five years. The Audit Committee should report to shareholders on the findings of any AQR report concluded on the company’s audit engagement during the reporting period.
- A prohibition of ‘Big-4-only’ clauses in loan documentation (ie clauses that limit a company’s choice of auditor to a preselected list).
- A shareholders’ vote on whether Audit Committee Reports in company annual reports contain sufficient information.
- Measures to strengthen the accountability of the external auditor to the Audit Committee and reduce the influence of management, including a stipulation that only the Audit Committee is permitted to negotiate and agree audit fees and the scope of audit work, initiate tender processes, make recommendations for appointment of auditors and authorize the external audit firm to carry out non-audit services.
- The FRC should amend its articles of association to include a secondary objective to have due regard to competition.