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Britain's four biggest accountancy firms have been heavily criticised by the Competition Commission.

PWC, Ernst & Young, Deloitte and KPMG of being too dominant and not always meeting a shareholder's needs.

The four accountancy firms act as auditors for 90% of the UK's stock-market listed big companies.

They have also been criticised in the past for not doing enough to warn of the financial crisis.

Critics say accountants failed to scrutinise the banks' balance sheets properly, missing the warning signals that led to government bailouts.

The concern is that the relationship between auditors and company management becomes too comfortable with a "tendency for auditors to focus on satisfying management rather than shareholders' needs".

"It is clear that there is significant dissatisfaction amongst some institutional investors with the relevance and extent of reporting in audited financial reports," said Laura Carstensen, chair of the Audit Investigation Group.

She added that "management may have incentives to present their accounts in the most favourable light, whereas shareholder interests can be quite different".

"We have found that there can be benefits to companies and their shareholders from switching auditors, but too often, senior management at large companies are inclined to stick with what they know."

The Competition Commission pointed out that companies do not tend to change their auditors - with almost a third of the FTSE 100 having used the same one for more than 20 years.

She said her organisation was looking into different ways of encouraging competition in the industry. Mandatory rotation of audit firms is one idea being considered, as well as forcing companies to put the contract out to tender after a certain period.

The Big Four argue that the market is competitive and say many big clients doubt that smaller firms could build up their expertise fast enough.

"We are very clear that we report to the shareholders and engage with the Audit Committee as their representatives," said PWC's Richard Sexton.

"We believe that the Competition Commission have grossly underestimated the critical role that Audit Committees play in protecting the interests of shareholders."

This was echoed by Ernst and Young, who said that competition in the market was "healthy and robust".

Ernst and Young's Hywel Ball added that they would co-operate fully with the inquiry but states that he did not believe that mandatory audit firm rotation was in the public interest.

Deloitte said it did not believe that the current market led to high prices, as contended by the Competition Commission, and added: "We categorically disagree that auditors typically place the interests of management over shareholders."

However, one of the smaller rivals to the Big Four, the BDO, said it was pleased that the report had confirmed "significant flaws" in the market.

"No one solution will achieve market correction, but rather a combination of tendering requirements, encouragement of transparency and dialogue between auditors, companies and investors, and reform of outdated exclusionary practices should provide a backdrop for a healthier FTSE 350 audit market," said Simon Michaels, managing partner at BDO.

The report is a preliminary one, with the final version due to be published in October. No evidence of tacit collusion was found.

Europe and the US are also looking into new rules for accountants. US audit regulators are also considering forcing companies to change auditors at regular intervals.

The European Commission wants to break up the Big Four, splitting their audit and their consulting businesses. Any new division would have to use a different name.