Regulators and professional bodies have welcomed the Competition Commission (CC) preliminary report on the FTSE 350 audit market, but are warning that the option of mandatory rotation of auditors is unlikely to result in greater competition and could increase costs and risks.

Stephen Haddrill, chief executive of the Financial Reporting Council (FRC) said the regulator was pleased to see the CC exploring measures such as regular audit retendering, strengthening the work of audit committees and a prohibition on Big Four-only clauses in loan provisions.

Haddrill said: 'The FRC introduced enhanced audit committee reporting, and retendering into the Corporate Governance Code last year, taking the view that retendering secured the benefits of mandatory rotation without its significant risks.'

In its analysis of the CC's provisional findings, ACCA said it does not believe there is evidence that mandatory rotation increases audit quality. 'Given the complexity of modern business, it can take two years plus before a new auditor is up to speed, and losing that long-held knowledge could be potentially disruptive for a company. ACCA would prefer to see an emphasis on competitive tendering,' the institute said in a statement.

ACCA also pointed out in its response that 'tendering takes a lot of effort and resources; it would be better to have the Audit Committee explain why they suggest to maintain an auditor without tendering after 10 years, as proposed by the FRC.'

Sue Almond, technical director at ACCA, said: 'For ACCA, the issue has always been about the end user of audit services, and we have previously said that future recommendations need to be workable for business while enhancing investor confidence.'

ICAS director of technical policy, James Barbour, also questioned whether the CC's provisional recommendation that audit firms should be changed every 7.10 or 14 years would be of benefit to audit quality, saying they could have 'significant cost implications for firms and the regulator'.

Barbour also raised doubts about whether the proposals would increase choice in the market, saying: 'It remains to be seen how exactly they would expand the pool of audit firms being engaged.'

Commenting on the CC report, Michael Izza, ICAEW chief executive said it was 'critical' that any measures designed to encourage greater competition did not 'undermine or destabilise what is such an important sector for the UK economy. They also need to be seen in an international context and be consistent with proposals currently being considered in Europe.'

'Increasing market choice will only be possible if audit committees - who are responsible for appointing auditors - recognise that there is huge quality and talent to be had outside the Big Four accounting firms,' Izza said.