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By Ian Welch, head of policy, ACCA

Amidst all the focus on tax changes and economic forecasts in the UK Budget yesterday, accountants could be forgiven for not noticing an interesting announcement sneaked into the fine print: that the Government has called upon the Office of Fair Trading to assess whether bank clauses in lending agreements unfairly restrict competition in the audit market.

The surprise announcement – mentioned on page 78 of the 126 page Budget document issued jointly by the Treasury and Department for Business, Innovation and Skills comes just before the report of the House of Lords inquiry into audit competition, expected to be published next week. It seems to have stolen some of the thunder from the Lords' conclusions.

The Government seems to have been influenced by the OECD, which suggested last year that banks sometimes make loans to business contingent on having audits carried out by the Big Four. Mid-tier firms such as BDO and Grant Thornton told the OECD of the existence of such restrictive covenants and have been very vocal on the subject ever since.

The Financial Reporting Council, which examined the issue and urged companies to disclose any such clauses (though admitting that few do) yesterday promptly welcomed the Government's move, which seems to have been inspired by Vince Cable, who has previously urged action on the issue.

ACCA, in its own submission to the Lords inquiry, supported greater audit competition and specifically focused on the restrictive covenants issue (along with liability) as being one area where action could be taken, so we welcome any move that the OFT might take to prevent banks including any such anti-competitive clauses into its lending agreements.

Firms should have to demonstrate that they are the best-placed to carry out audit work – it should not be assumed and they certainly should not be given artificial 'help' in this way. Action in this area could genuinely increase competition by persuading 2nd tier firms that it is worth undertaking expensive and time-consuming tenders. At the moment they are understandably reluctant to do so in certain cases, believing they will not be given a fair crack of the whip. 

It will be interesting to see what concrete evidence the OFT unearths, but the very fact it has been asked to examine this issue by the Government increases the political pressure on the Big Four. You can be sure it will have been noted in Brussels, where EC Financial Services Commissioner Michel Barnier continues to deliberate on fundamental changes to the audit profession. He will also have noted in the Budget document yesterday that the UK intends to "press the European Commission to remove the audit requirement for most medium-sized companies in the lead up to the publication of a revised audit directive, expected in November 2011." This, it is understood, would mean companies of up to £25m turnover, a dramatic hike from the current level.

This is where ACCA parts company from the Government. You can make a fair case for SMEs not to have to undertake a full audit. But if you believe that good audit adds value to business – as we strongly do – then where should that line be drawn? The Budget document once again makes reference only to the 'savings' made by such plans – this time a conveniently eye-catching £200m – and not the downside of a dramatic increase in the number of businesses having no external check on their finances. Other EU member states do not even use the maximum threshold allowed under current rules, fearing that, in the current global economic uncertainty, doing away with audits may not be wise. Can the Government be so sure they are wrong without carrying out any impact assessment?