David Prosser: Greater auditing competition is overdue

Outlook The Office of Fair Trading's latest thoughts on competition in the audit market (or the lack of it) make interesting reading. Not only does it question whether Britain can tackle the problem without assistance from the European Commission – in which case, it says, why bother with a Competition Commission inquiry? – but it also effectively suggests that the big four audit firms' clients must shoulder some of the blame for concentration in the industry.

On the first of those points, the big four have much to fear, for the Commission has a much stronger record on tackling anti-trust matters than Britain's institutions. It has already mooted the ideas of caps on market share for auditors, or even a requirement for joint audition, where the big four firms would have to share mandates with a smaller player.

On the second issue, the statistics are pretty damning. The fact that less than a third of big companies seem to have put their audit contract out to tender does not say much for their efforts to generate competition between suppliers. A requirement for companies to automatically hold regular tendering processes thus looks sensible.

The fear about the lack of competition in the audit sector is not just that it may be injurious to good value – with companies forced to pay more than they should – or even that it is unfair that smaller players are missing out. Worse is that a market in which four auditors are dominant and in which their clients do not question the services they are receiving is not conducive to high standards.

At best, that might mean shareholders of a single company losing out because an auditor has failed to spot a problem. At worst, where the problem missed is a common one of systemic importance, it could mean a crisis. Did any of the big four auditors warn the world about the nasties lurking in the banks' accounts? If so, no one heard them.