Back in August we reported on the Competition Commission’s (CC) provisional decision regarding the supply of audit services to large UK companies in our post – The Big Four – will the competition commission succeed in widening the supply chain? At the end of its investigation into the statutory audit services market, the CC released its final report on 15 October 2013.

The report deals primarily with two key aspects:

  • it highlights the different aspects that contribute towards its anti-competitive nature; and
  • it outlines a set of remedial actions that are to be taken in order to combat anti-competitiveness.


The remedies set out in the report, by and large, reflect the list of proposed remedies published by the CC back in July 2013. However, there are some notable changes to be introduced to market practice.

1. Borrower’s obligation to tender

FTSE 350 companies are required to put their statutory audit needs out to tender at least once every ten years. However, the CC still recommends tendering every five years to improve competition in the marketplace.

2. Review & report

The Financial Reporting Committee (FRC) will be involved in the frequent review of every audit engagement in the FTSE 350 (on average every five years). They will then be required to report their findings to the relevant company’s shareholders.

3. Prohibition of ‘Big four clauses’

Probably of most interest to finance lawyers, the CC has passed an order prohibiting the inclusion of provisions in loan agreements that seek to limit or restrict the list of auditors that a company can choose from.

This ban on so called ‘big four clauses’ applies to all loan agreements, including bilateral and syndicated loan agreements, and will apply to agreements with all borrowers. Notably, the order does not cover prospectuses relating to bond issues which sees a change from initial proposals.

The order does allow for a caveat to the rule where an ‘objectively justified’ criteria can be met. This includes appropriate skills and geographical range as factors but does not extend to reputation.

This order will only apply to agreements entered into on or after its effective date. Accordingly, the CC has made a recommendation to the Loan Market Association (LMA) that it amend its current leveraged loan agreement template to reflect these changes.

Going forward

The is an attempt by the CC to increase competition in the audit market and reduce barriers to entry into it. Whether their proposed remedies will have the desired effect is yet to be seen.  However, with a further investigation underway by the European Union and mandatory switching of auditors still a possibility, this may only be phase one of the competition based changes to this market.

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.