Today's Competition Commission (CC) report on the FTSE 350 audit market has been welcomed by mid-tier firms for highlighting the lack of diversity in audit provision, while the Big Four have robustly challenged the CC's view that auditors are failing shareholders.

Richard Sexton, head of reputation and public policy, PwC said: 'We believe that the Competition Commission have grossly underestimated the critical role that audit committees play in protecting the interests of shareholders.'

Hywel Ball, head of assurance, at Ernst & Young, said his firm 'disagreed strongly' with the CC's comments that the audit market is not serving shareholders.

'We note that much of the summary is on aspects of corporate governance and regulation, and in that context we are surprised that there are important omissions from the description of how that framework operates.

'For example, there is no mention of the role of the chair of boards and the senior independent directors in representing and safeguarding shareholder interests, nor of the importance of unitary boards themselves. We think the somewhat stark description in black and white terms of the role and power of the finance directors and their motives does not represent the real world as we experience it,' Ball said.

KPMG said it also rejects the CC's assertion that auditors' focus is too often on management and that shareholders are not being properly served.

Simon Collins, chairman and senior partner of KPMG in the UK, said: 'We do not agree with the Commission's conclusion that, effectively, audit committees are not doing their jobs properly. In our experience, audit committees in the UK generally take their responsibilities seriously, both for oversight of the external auditor and financial reporting more generally.'

David Barnes, managing partner, Deloitte UK head of public policy, said 'we categorically disagree that auditors typically place the interests of management over shareholders'.

Barnes also challenged the way the CC report presented some of the evidence in its provisional findings, saying: 'For example, it is not our experience and we don't believe the evidence supports the contention that current market conditions have led to unnecessarily higher prices, lower quality or less innovation.'

KPMG pointed out that the CC recognised there is no evidence of collusion, bundling of audit and non-audit services, 'low-balling' or undue influence over regulation from the Big Four, while E&Y stated that 'competition between audit firms is healthy and robust and the evidence supports this'.

However, Simon Michaels, BDO managing partner, said the CC report 'confirmed that there are significant flaws in the structure of the FTSE 350 audit market'.

'We have long been at the forefront of campaigning for change in this market, which has been characterised by a lack of choice for clients and investors and by restricted competition, potentially threatening the ability of audit to underpin the effectiveness of UK capital markets,' Michaels said.

David Herbinet, Mazars' UK head of public interest markets described the CC's findings as 'a resounding indictment of the current state of the FTSE 350 audit market'. Herbinet said 'a major programme of reform is required as an urgent matter of public interest,' which should result in 'additional players winning significant market share within the next three to five years, including at the top end of the FTSE 100'.'

Both E&Y and KPMG said they did not believe mandatory audit tendering or rotation, as proposed by the CC, are in the public interest. All firms said they are awaiting publication of the full provisional report, due next week, before making detailed comments.

The closing date for feedback is 18 March.

To read the CC provisional findings, click HERE