UK watchdog says firms should review accountants every 10 years

(Reuters) - Britain's top 350 companies should review who checks their books at least every 10 years to ensure the accountants are of high enough quality, the Financial Reporting Council said on Friday.

The UK audit policeman stopped short of saying it would force companies to put their accounts out to tender after that time, but said those who did not would have to explain why not.

Britain's blue chip companies keep the same auditor for an average of 48 years, found a report in March 2011 by the House of Lords, Britain's upper parliamentary chamber.

Policymakers fear such long mandates can make auditors less scrupulous in examining their clients' business. The new requirements are aimed at tightening procedures found during the financial crisis to have failed: some auditors gave a clean bill of health to banks that then had to be rescued by taxpayers.

"The FRC will be holding discussions with companies, auditors and investors to consider whether guidance on tendering would be useful," the regulator said in a statement.

The decision, effective next month, comes during a UK Competition Commission probe of Britain's audit market which, as in most major economies, is dominated by the world's "Big Four" accounting firms: KPMG, Ernst & Young, PricewaterhouseCoopers and Deloitte.

The European Union also wants to inject more competition into the audit market and has proposed a draft law to force companies to switch auditors every six years.

Smaller auditors like Grant Thornton, Mazars and BDO say such intervention would open up choice for customers.

The Financial Reporting Council also announced other changes to its corporate governance code, such as requiring a company's audit committee to tell shareholders how they have assessed the effectiveness of the external audit process.

Company boards will also have to confirm that the annual report and accounts taken as a whole are "fair, balanced and understandable... and accurately reflect the company's performance".

"The changes to the UK Corporate Governance Code are designed to give investors greater insight into what company boards and audit committees are doing to promote their interests," FRC Chairman Baroness Hogg said.