Accountants have come under much criticism in the past five years for failing to spot the massive liabilities on banks’ balance sheets, and there have been suggestions that the Big Four – PwC, Ernst & Young, KPMG and Deloitte – have become too cosy with senior managers. With that in mind, the Competition Commission is now encouraging FTSE 350 executives to put their auditing contracts up for tender every five years.

Laura Carstensen, chairman of the Commission’s Audit Market Investigation Group, said that this would provide a climate in which shareholders are better served by a “more competitive market” for statutory audit that is more “responsive” to their requirements. “More frequent tendering,” she said, “will ensure that companies make regular and well-informed assessments of whether their incumbent auditor is competitive and will open up more opportunities for other firms to compete. A more dynamic, contestable market will reduce the dangers that come with overfamiliarity and long, unchallenged tenures.”

The watchdog believes that decades-long relationships between companies and their audit firms have compromised independence – for example, the Office of Fair Trading found that in 2010, the Big Four earned 99% of total audit fees paid by FTSE 100 companies. And with The Big Four controlling two-thirds of the global audit market, the tendering plan is just one of six “remedies” that the Commission has proposed to mitigate the situation. However, the measures have stopped short of forcing companies to switch – thanks in part to successful lobbying from auditors since February, when the plan was first mooted.

While the Commission’s keenness to curtail the Big Four’s dominance is perhaps understandable, its call for tendering poses two, clear management issues: i) if you are happy with your auditor, and you are not doing anything wrong, then why should you be forced to change? And ii) If you have to change, you can’t just “click and drag” your entire auditing operation across to another provider – you have to educate that new auditor about the nature of your business. To do that every five years would take a huge toll on internal resources – particularly financial ones.

Institute of Chartered Accountants in England and Wales (ICAEW) chief executive Michael Izza has not welcomed the recommendations, stating that they would have negative “unintended consequences” in terms of quality, cost and competition.

“While there is a desire for greater competition and choice in the audit market,” he said, “whether or not tendering on a five-year basis will help achieve this is open to question. Regular tendering is good business practice, but we need to be mindful of the regulatory burden. There needs to be a balance between the costs and resources required from both businesses and firms when tendering and the desired outcomes.”

He added: “It is therefore disappointing that the Commission has decided on more frequent tendering than that now required on a comply or explain basis by the Financial Reporting Council (FRC), which has not had a chance to embed yet.”