Britain's top accountants are to have their own books scrutinised after the consumer watchdog today referred the business of checking companies' figures for a full-scale competition inquiry.
The Office of Fair Trading (OFT) said it had been concerned for some time that the audit market is highly concentrated with low levels of switching and substantial barriers to entry.
The watchdog estimates that in 2010 the "big four" firms, PwC, KPMG, Deloitte and Ernst & Young, earned 99% of audit fees paid by FTSE 100 companies, while between 2002 and 2010 only 2.3% of FTSE 100 firms changed their auditor.
The industry was also heavily criticised last year by a House of Lords committee over conflicts of interest and the quality of published accounts in the run-up to the credit crunch.
The decision to refer the industry to the Competition Commission, which was widely expected, followed meetings with the accountants, customers and regulatory bodies, the OFT said.
John Fingleton, OFT chief executive, said: "Voluntary and industry-led efforts to increase competition and choice in this market have proved unsuccessful. Following extensive consultation, we have concluded that a reference to the Competition Commission is appropriate."
Pressure on the "big four" accountancy firms has also been mounting in Europe, where the European Commission recently suggested a bar on auditors providing consulting services to audit clients.
The OFT added that one of the issues it had considered was the potential for overlap with the work going on in Europe, but had concluded there were enough UK-specific concerns to warrant a Competition Commission investigation.
The inquiry could run for two years, although the Commission will aim to complete its investigations in 18 months or less, today's statement said.
The large accountancy firms argued today that the market for large audit work is competitive already.
David Sproul, UK chief executive at Deloitte, said: "We believe the audit market is highly competitive and is an important contributor to UK growth."
He added that any changes to the market that come out of the inquiry must not hurt audit quality, the UK's growth prospects or the country's appeal as a business location.
Ernst & Young also said competition for audit work was "alive and well" but said it supported increased choice and a wider range of audit firms to choose from for the largest companies.
BDO, one of the smaller firms that stands to benefit from more work moving away for the "big four", welcomed the OFT's move and said it had long argued that market concentration should be addressed.