Britain's listed companies could be forced to switch accountants to boost competition and end the cosy relationships that have dismayed shareholders, a UK watchdog warned today.
Competition in the UK audit market is restricted by factors that make it hard for companies to switch accountants.
This is according to the UK Competition Commission's preliminary findings from a probe it began in 2011.
The Commission said that there is also a tendency for auditors to focus on satisfying management rather than shareholder needs.
The commission's findings will bolster a draft European Union law which contains similar plans for boosting competition in the audit market.
The US is also mulling auditor rotation as the sector globally faces questions after it gave banks a clean bill of health just before governments had to rescue them in the 2007-09 financial crisis.
The "Big Four" - KPMG, PricewaterhouseCoopers, Ernst & Young and Deloitte - check the books of nearly all big companies in Britain and around the world and have often served the same clients for decades.
"We have found that there can be benefits to companies and their shareholders from switching auditors but too often senior management at large companies are inclined to stick with what they know," said Laura Carstensen, who chaired the watchdog's audit probe.
The lack of competition is likely to lead to higher prices, lower quality and a failure to meet the demands of shareholders and investors, the commission said.
There was "significant dissatisfaction" among big investors and changing the "long standing and entrenched" system will take time.
It proposed a mix of reforms, including forcing companies to put out their audit work to tender and change accounting firms every few years.
This goes further than a recent change introduced by Britain's accounting policeman, the Financial Reporting Council, which requires companies to consider changing accountants every decade.
The Commission also proposes banning "Big Four only" clauses, meaning banks could not insist on a borrower using one of the four top audit firms.
The probe found that 31% of the top 100 companies and a fifth of the next 250 firms had had the same auditor for over 20 years.
The Big Four insist there is strong competition and point to downward pressure on fees and some recent switchings of auditors among big companies.
But the second tier of audit firms, such as Mazars, BDO and Grant Thornton, say it would not be worthwhile expanding unless there was some intervention to help prize open the market.
"It's clearly going to make a significant contribution in Brussels as the European institutions decide the way forward on the future shape of the EU audit market," said David Herbinet, Mazars' UK head of public interest markets.
Mr Herbinet urged the UK watchdog to go a step further and put a limit on the advisory services accounting firms sometimes also supply to clients they audit.