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115-11 21 October 2011
The OFT has today referred the market for the supply of statutory audit services to large companies in the UK to the Competition Commission (CC) for further investigation.
The decision to make a market investigation reference follows a public consultation which closed in September.
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.
In 2010, the four largest firms (PwC, KPMG, Deloitte and Ernst & Young) earned 99 per cent of audit fees paid by FTSE 100 companies. Between 2002 and 2010, the average annual switching rate among FTSE 100 companies was only 2.3 per cent.
Before provisionally deciding to refer the market to the CC, the OFT held a number of meetings with audit service providers, customers and regulatory bodies. One of the issues considered by the OFT during these meetings was 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. The OFT also believes that a CC inquiry has the potential to address UK-specific competition concerns that may not be within the scope of the EU's work.
John Fingleton, OFT Chief Executive, said:
'The market for large company audits lacks sufficient competition and does not work well for customers. It is highly concentrated, largely supplied by four big firms, with clients rarely switching between auditors. There are also high barriers to entry for new and smaller competitors. These are not the indicators of a competitive market.
'Voluntary and industry-led efforts to increase competition and choice in this market have proved unsuccessful. Following extensive consultation, we have concluded that a reference to the Competition Commission is appropriate. We believe that such an inquiry will also complement the EU's legislative process.'
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