UPDATE 2-UK competition watchdog rows back on audit reforms
* Firms should tender for accounting work every 10 years
* Had previously considered demand to tender every 5 years
* EU likely to go step further with mandatory auditor change
By Huw Jones
LONDON, Oct 15 (Reuters) - Britain has pulled back from accounting reforms that would have forced top companies to change book-keepers every five years, putting its regulators potentially at odds with tougher reforms likely to be introduced across the European Union.
The reforms are part of a regulatory clampdown following the 2007-09 financial crisis, because auditors had given banks a clean bill of health just before many had to be rescued by taxpayers.
Critics have also said the "Big Four" accountancy groups have developed too-cosy relationships with top company executives and there has not been enough competition in the market.
Under proposals released on Tuesday by the UK Competition Commission, the top 350 UK companies would be forced to put their book-keeping out to tender at least once a decade, to shake up a market dominated by KPMG, PricewaterhouseCoopers, EY and Deloitte & Touche.
But the changes which would take effect from the final quarter of 2014 row back on an earlier draft recommendation that would have forced companies to re-tender their audit work every five years.
The watchdog, whose investigation had been launched in October 2011, had faced opposition from companies and investors, worried about the cost and disruption of very frequent tendering.
The sector's regulator, the Financial Reporting Council (FRC), had also wanted more time for its year-old rule requiring firms to consider re-tendering at least once a decade to work - a rule that PwC said had already helped prompt 24 of the top 350 companies to re-tender in the past year.
KPMG also said 10 years struck a better balance.
"Our measures will deliver lasting change in a market where currently a major company putting its audit out to tender remains unusual enough to be a news story," said Laura Carstensen, who chaired the Competition Commission's probe.
The competition watchdog shied away from a much tougher option: forcing companies to change their accountant on a regular basis, a step the European Union is likely to introduce in any case.
It also stopped short of restricting non-audit services like consultancy work, an area where the EU may cap fees.
David Barnes, managing partner at Deloitte UK, said the audit market had changed since the competition watchdog began its probe two years ago, with more tenders taking place.
"While this does provide clarity in the UK audit services market, there will be some uncertainty until the position in Europe is finalised," Barnes said.
Middle-tier accountants such as Grant Thornton, Mazars and BDO have looked to regulators to prise open the market and BDO senior partner James Roberts said some may regard the actions being taken as less radical than many would have hoped.
"We are under no illusion that, despite the investigation, the establishment of real and sufficient competition is a long-term undertaking," Roberts said.
David Herbinet, a partner at Mazars, said the reforms would prise open a once "ossified" market, though not overnight, while Grant Thornton said it would help it commit to investing.
Many top firms have kept the same accountant for decades, with PwC having audited two banks, Barclays and Lloyds , for more than a century.
So far, the high-profile changes in accountants have been among the Big Four rather than allowing other firms a look in.
"This is a missed opportunity to give the largest listed audit market the shake up it badly needs," Michael Snyder of Kingston Smith accountancy firm said.
While ceding ground on re-tendering, the competition watchdog confirmed a draft recommendation that the FRC should review the audit engagement for each of the 350 companies on average every five years, a heavy undertaking for the regulator.
The FRC should also expand its remit to include competition as an objective, confirming a recommendation made at the draft stage which had also raised concerns at a regulator with modest resources.
Michael Izza, chief executive of accounting body ICAEW, said it was regrettable the competition watchdog had not simply endorsed the FRC's voluntary approach to re-tendering.
Some Big Four officials have come round to seeing the benefit of a likely EU law requiring a change in auditor, probably every 15 to 25 years, for the certainty that would bring.
"Bring it on," said one, adding that a mandatory switching period would make it easier to plan ahead and more worthwhile to take part in a tender knowing the incumbent could not retain the mandate.