Top investors, including Morley Fund Management, have called for greater shareholder involvement in the appointment of auditors to reduce concerns of market concentration in the hands of the "Big Four" accountancy firms.
Deloitte & Touche, Ernst & Young, KPMG and PricewaterhouseCoopers currently audit 97 per cent of the FTSE 350, a government report said in April.
The report, which was commissioned by the Department of Trade and Industry and the Financial Reporting Council (FRC), the accountancy watchdog, found that many large listed companies in the UK said they had an effective choice of just two or three audit firms and some, notably banks and insurance firms, said they had no choice at all.
In their response to the report's findings, which were published on Wednesday, top investors said they should have a greater say in the selection of auditors.
Regulators and policymakers should study ways to introduce "greater shareholder involvement in the selection, appointment and oversight of the auditors," Morley Fund Management, which manages over £156 billion in its funds, said in its response.
If auditor selection is left entirely to management, investors fear the auditors will become more lenient towards the board when it comes to sifting through accounts for fear any challenges could lead to the auditors' dismissal.
"Shareholders want auditors who are strong enough to stand up to management of companies when necessary," the Governance for Owners LLP, a fund manager, said in its response.
The role of audit committees and the concentration of the audit market may have combined to move the balance of power in favour of the auditors, it said.
"It is clearly unacceptable from an investors' point of view to have independent auditors that have been elected by the owners to verify the figures presented to members," said Duncan Alexander, a small investor, in his response.
The National Association of Pension Funds said, for the most part, investors did want corporations to chose the large accounting firms, whose reputation provided "considerable comfort to them".
But "several investors had publicly expressed their concerns about... a real threat to the quality of the audit in the UK" posed by the concentration of the Big Four firms.
"While some regard their position as extreme, there can be little doubt that the trend is as they suggest," it said.
Last week, the Association of British Insurers, which represents shareholders controlling nearly a fifth of the UK stock market, said the big accountancy firms should be made to drop clients if their share of the market is considered excessive.
The audit giants, in their responses, cautioned against steps that would promote choice in the industry over quality, telling mid-tier firms they would have to invest in staff and in increasing size and geographic coverage to compete for top contracts.
"PwC does not accept that the current level of choice in the UK and global audit markets for large public companies represents a risk to either quality or competitive prices," PricewaterhouseCoopers said.
Ernst & Young conceded there were risks to corporations if the Big Four were reduced to three.
"If this were to happen there is a real risk that this would put the entire profession at risk because it is unlikely firms would be able to retain enough talented people to consistently deliver a quality audit product," it said.
Paul George, director of the professional oversight board at the FRC, said the body will publish a summary of all the responses on its website ahead of a September 18 meeting to discuss what, if any, actions would need to be implemented.