Ernst & Young has attacked the Competition Commission's (CC) proposals for reform of the UK audit market for large listed companies as 'flawed' and likely to produce unintended consequences.
In its submission on the CC's provisional findings and proposed remedies, E&Y says 'many of the CC's findings and conclusions suggest a misunderstanding of the entire UK corporate governance regime' and describes the watchdog's call for further changes to the corporate governance code as 'premature'.
Hywel Ball, E&Y head of assurance, UK & Ireland, said: 'Aspects of the CC provisional report and remedies are frankly flawed, unsubstantiated, lack evidence and explanation.'
E&Y said it did not support the proposal to increase the frequency of mandatory retendering, saying there was no evidence that the current 10-year approach is inadequate. It cautioned that the CC proposals could result in 50 to 70 tenders a year, with the result that 'as a simple matter of practicality' audit firms would not be able to devote sufficient effort and resources to ensure effective competition. The firm also opposed a move to mandatory firm rotation as likely to increase costs while threatening audit quality.
'Many of the CC's findings and conclusions suggest a misunderstanding of the entire UK corporate governance regime, which is an extensive regime of finely balanced rules and principles. The aspects of the regime applicable to audits is only one element of a much more extensive corporate governance framework,' Ball said.
E&Y is in agreement with the CC over issues such as the decision to adopt proposals for tenders on an open-book basis, the removal of clauses in loan documents, and measures to give shareholders a greater involvement in auditor selection. It also supports the recommendations to strengthen role of the Audit Committee, although the firm believes the CC undervalues the power and influence of these committees in securing audit quality and auditor independence in the interests of shareholders.
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