Out-Law News | 20 Aug 2014 | 10:52 am | 1 min. read
The increase follows the introduction of new EU-wide laws that were finalised in April, and which will require companies to rotate their auditors every 10 years. Companies will be able to appoint the same firm for a further 10 years if they put their audit requirements out to tender. The UK's Competition Commission, now superseded by the Competition and Markets Authority (CMA), also imposed mandatory retendering on FTSE 350 companies last year and these are due to come into force in October.
James Chalmers, PwC's head of assurance, said that the increase in the number of tenders was a "significant step up", particularly as "five years ago these tenders were extremely rare".
"Now that there is greater clarity on the implications of the EU rules, companies are able to make decisions on when to tender at a time that makes most sense for their particular circumstances," he said. "For some, that means going early, for others it means going later; but, crucially, the choice is still theirs to make."
According to PwC, 17 UK listed companies had completed a tender process as of 8 July 2014, while 14 more exercises were underway and seven companies had announced that they were considering tenders. It said that an additional 18 companies were expected to review their auditing arrangements this year, resulting in a total of 56 businesses beginning a tender process this year.
The estimate is almost double the 30 tender exercises carried out in 2013, which itself was considerably higher than the 12 tenders issued in 2012, PwC said. In 2012, the Financial Reporting Council (FRC) introduced new rules requiring companies to tender their auditing requirements every 10 years on a 'comply or explain' basis, meaning that they do not need to do so if they can provide an explanation to the regulators.
Corporate governance expert Martin Webster of Pinsent Masons, the law firm behind Out-Law.com, said that the FRC recognised at the time that the large accountancy firms would not be able to cope with a large number of tenders at the same time, and encouraged companies to align a tender with both the cycle for rotating the audit engagement partner and the length of time since the audit contract was last put out to tender.
"It will be interesting to see whether these tenders just result in a shuffling of the pack amongst the big four accountancy firms, or whether smaller firms begin to win new audit mandates," said Webster.