Question to the Department for Business, Energy and Industrial Strategy:

To ask the Secretary of State for Business, Innovation and Skills, what steps his Department is taking to increase levels of competition in the auditing sector.

The Competition and Markets Authority (CMA) completed its investigation into competition in the market for statutory audits of UK companies in the FTSE 350 in 2013. Since that investigation the Department for Business Innovation and Skills, the CMA and the Financial Reporting Council (FRC) have been working to implement the remedies that the CMA identified to improve competition.

• The CMA issued an Order mandating the tendering of auditor appointments by UK companies in the FTSE 350 in 2014.
• The FRC responded positively to the CMA recommendation to increase the frequency of its inspections of audits of the FTSE 350 companies and now expects to review most such audits at least once every five years.
• The FRC has also developed further its communication with audit committees, to help them to meet new responsibilities under the UK Corporate Governance Code to report on significant matters arising from FRC inspections.
• The CMA’s proposed remedy to prohibit restrictive clauses in companies’ agreements with third parties (such as loan agreements), to limit their choice of auditor, will be implemented as part of the current EU Audit Directive and Regulation.

Once implemented the Directive and Regulation are expected to increase competition in the sector as they broaden the requirement for regular tendering of auditor appointments. Under implementing regulations currently laid before Parliament, all companies that are banks, building societies or insurers, or which have securities admitted to a regulated market, will be required regularly to subject their audit engagement to tendering. The maximum duration of an audit engagement will be limited to 20 years (currently there is no maximum duration). This will be introduced on a phased basis with some longstanding engagements given a further 4 or 7 financial years after the regulations come into force before they must be brought to an end and tendered to new auditors.