The Competition Commission has found that the audit market has "systemic" issues that have led to a closed club of the Big Four accountants dominating the sector.
Senior figures from KPMG, Deloitte, Ernst & Young and PricewaterhouseCoopers have reacted angrily to the findings of Laura Carstensen, the commission's inquiry chairman, that the market is suffering from a lack of competition. Between them, the Big Four run the numbers of more than 95 per cent of the FTSE 350, a market worth £800m in fees.
After 16 months of investigation, Ms Carstensen's provisional report says corporates should be compelled to re-tender audit work more regularly.
They could also be forced to change their auditor every seven, 10 or 14 years, depending on further findings during consultation, and prohibit loan terms that specifically say a Big Four auditor must be used on the accounts.
Ms Carstensen said: "This is systemic. There's a stickiness in the market — the fact is that companies stick with an audit firm for decades, which can potentially lead to quality issues. There would be price benefits from switching around." The commission also wants audit committees and shareholders to have more of a say than management over who runs the rule over company accounts and the fees that they are paid.
"Management interests might diverge from shareholders — they would want to present things in a favourable light while shareholders might want warts-and-all accounts," she added.
Richard Sexton from PwC said this argument "grossly underestimated the critical role audit committees play in protecting the interests of shareholders." Ernst & Young said competition between audit firms is "healthy and robust".