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“Complacency” and “dereliction of duty” on the part of the Big Four audit firms contributed to the financial crisis, according to the findings of a U.K. parliamentary investigation into the audit market.

The House of Lords Economic Affairs Committee, which has been investigating the profession for eight months, said audit standards in the run up to the crisis had been slipping and a “breakdown of dialogue” between bank auditors and regulators “made the financial crisis worse.”

The report said the move to International Financial Reporting Standards (IFRS), which became mandatory for European Union-listed companies in 2005, had lowered audit standards, “encouraged box-ticking and reduced scope for auditors to exercise judgment to reach a true and fair view.” Prudence should be “reasserted as the guiding principle of audit,” it recommended.

On the broken relationship between bank auditors and regulators, the report said: “Auditors were either unaware of the mounting dangers in the banks or, if they were aware, failed to alert the supervisory authority. The paucity of meetings between bank auditors and the supervisor was a ‘dereliction of duty' by both auditors and regulators.”

The report also called on the U.K.'s competition regulator, the Office of Fair Trading, to hold a “detailed investigation” into the Big Four's domination of the market for large company audits. In 2010 these firms audited 99 of the FTSE 100 largest listed companies, which change auditors every 48 years on average.

The report said the Big Four's dominance of auditing was a global issue, but “the UK should take a lead since London is a major global financial center where the Big Four are particularly prominent.”

Committee chairman, Lord MacGregor of Pulham Market, said, “Our inquiry has revealed widespread concerns about the Big Four's dominance and the risk that they could become the Big Three. Our report makes several recommendations to reduce this dominance but we feel that this market concentration is of such significance that a thorough review of the issues by the Office of Fair Trading and possibly the Competition Commission is now overdue.”

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