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UK Audit Market Subject to Competition Commission Investigation

Tuesday, October 25, 2011

Sarah Jane Leake | Bloomberg LawStatutory audit: Market investigation reference to the Competition Commission of the supply of statutory audit services to large companies in the UK – Office of Fair Trading Report, October 2011 After months of consultation1 arising out of high-level parliamentary scrutiny,2 the Office of Fair Trading (OFT) now has confirmed its decision to refer the market for the supply of statutory audit services to large companies in the UK to the Competition Commission (CC) for investigation. In line with the statutory test for referral, set out at section 131 of the Enterprise Act 2002, the OFT considers there to be reasonable grounds for suspecting that there are features in the audit market that restrict, distort, or prevent competition in the UK. While a number of respondents to the OFT's recent consultation argued that the OFT's investigation was too limited in scope, the OFT maintains that the OFT stage is "not intended to be a deep and prolonged investigation in which every avenue is exhaustively looked at . . . . That is for the CC stage."3

The Importance of the Audit Market

Audit is vital to the country's financial health. A large number of companies are required to have their annual accounts audited, pursuant to Part 16 of theCompanies Act 2006, for the primary purpose of providing assurance to shareholders and the wider investment community that a company's financial statements represent a true and fair view of the company. As auditors therefore play a key role in ensuring an efficient allocation of capital, it is important to ensure that the market for audit is sufficiently competitive, and that it can deliver the most efficient outcomes in terms of price, quality, and innovation. This is particularly important considering the size of the market – audit fees for the FTSE 350 in the UK amounted to over

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