Competition Commission to investigate audit market

 

The Office of Fair Trading (OFT) has referred the audit market to the Competition Commission (CC) for further investigation.

Following a public consultation, it referred the market for the 'supply of statutory audit services to large companies' to the commission. At present the Big Four earn 99% of audit fees paid by FTSE 100 companies.

According to an OFT statement, it has been concerned for some time that the audit market is highly concentrated, with low levels of switching and substantial barriers to entry.

Between 2002 and 2010 the average annual switching rate among FTSE 100 companies was just 2.3%.

The OFT has also considered the potential for overlap with parallel work ongoing at a European level. However, the nature, content and timing of EU legislation are not settled and the OFT believes that there are a number of important inputs that the CC might make during the legislative process.

Continued...

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Comments

Should the CC investigation include the National Audit Office?

dstickl | | Permalink

I note that 'Michael Izza, chief executive at the ICAEW was more cautionary: “When conducting its inquiry, the Competition Commission shouldn’t lose sight of the fact that the UK has very high standards of audit quality...'

If that cautionary claim is indeed the case, then can any of the professional auditors who read accountingweb please explain how is it that 'a wishy-washy National Audit Office report on the "resolution of tax disputes" focused on "governance" procedures rather than the real question of whether big-time tax-dodging was being given an easy ride'?

I ask the above question in view of alleged scandal involving HMRC's Dave Hartnett, as revealed in the Tax section of this website, and the alleged HMRC emails etc revealed in Private Eye No. 1299 of 14 - 27 Oct'11 page 29 'IN THE BACK - TAX DEALS' including:

Don't ask, don't tell

Parliament has not been helped in its efforts to get to the bottom of HM Revenue & Customs' dodgy deals with Vodaone and other big businesses by working from a wishy-washy National Audit Office report on the "resolution of tax disputes" that focused on "governance" procedures rather than the real question of whether big-time tax-dodging was being given an easy ride.

This, the Eye can reveal, was because any prospect of a proper investigation was nobbled from the outset by ... HMRC boss Dave Hartnett.

An email from HMRC chief lawyer Anthony Inglese's "head of business and administrative support", copied to Hartnett, Inglese and others and titled "Providing NAO with brief details of major litigation cases", says the auditors were initially "pushing very hard for detailed information" on many of Britain's biggest tax disputes, each "with over £100m tax at risk". {dstickl comment: i.e. a much greater tax due than the alleged take from the 'fiscal horror' - in CIOT's words - of IR35.}

For one thing, the auditors wanted to know how strong the Revenue's arguments were. This was crucial since HMRC's own policies dictate that if it has a strong case then it must accept no less than the tax and interest bill. But, says the email, "Dave [Hartnett] and Alan [Evans, a senior HMRC lawyer] were able to convince them to accept less detailed information that did not give any indication as to whether we thought our case was strong."

The absence of this information meant that investigators could not even look at the question at the heart of the issue... {END of the extract from Private Eye.}

QUESTION: As the OFT 'has been concerned for some time that the audit market is highly concentrated, with low levels of switching and substantial barriers to entry', do any readers support my view that the Competition Commission (CC) investigation should include the alleged wishy-washy National Audit Office and its report(s), in view of HMRC's alleged apparent scandalous unfair preferential treatment of alleged big-time tax-dodging?

Requires a wide remit!

ChaseBuckley | | Permalink

At the heart is the question of independence.

Alas, nowadays with the size of the global entities requiring audit, there is a requirement for the audit firm to be sufficiently large & co-ordinated to dismiss any perceived pressure.  At the moment, Cannon comes to mind.

However, given this premise, it does not prohibit competition from  "medium" sized firms acting in unison or as we used to say as "correspondent" firms.

What is essential is that the cross selling of other services such as Management Consultancy, tax planning etc. is either prohibited or submitted to independent, annual scrutiny.