* Encouragement of auditor "rotation" seen likely
* Few expect radical steps to break up Big Four
* Findings will shape EU audit shake-up, U.S. debate
By Huw Jones
LONDON, Feb 18 (Reuters) - The "Big Four" accounting firms should find out this week how their grip on Britain's audit market could be loosened in a ruling Europe and the United States will scrutinise.
The Competition Commission launched its probe into the audit market for the country's 350 top listed firms in 2011 but has delayed its preliminary findings twice to this month. It said it was hoping to make an announcement this week.
Britain's market mirrors the global sector with just four companies - KPMG, PwC, Ernst & Young and Deloitte - checking the books of 90 percent of UK listed blue chips.
The probe was partly prompted by a House of Lords inquiry which found that listed companies, which must have their annual reports signed off by an auditor, use the same accountant for an average of 48 years, a figure the Big Four dispute.
The fear is that auditors become less sceptical over time about what clients tell them. Policymakers were also angered that accountants gave banks a clean bill of health just before taxpayers had to rescue them in the 2007-09 financial crisis.
The Big Four's audit and advisory income easily outstrips rivals: PwC had UK revenues of 2.5 billion pounds last year, with Deloitte at 2.1 billion, KPMG 1.7 billion, and E&Y at 1.5 billion, according to Competition Commission figures.
In the next tier, Grant Thornton, which audits five of the top 350 firms, brought in 377 million pounds, BDO, which audits 57 of the 350 top firms, 280 million, and Mazars 109 million.
So far the watchdog has found no evidence of collusion among the Big Four but says they enjoy a "virtuous circle" of deep experience, making it harder for rivals to break in. Many chairs of company audit committees are former Big Four employees.
The Big Four insist competition is fierce, pointing to downward pressure on fees, but the UK probe has sparked public sniping between the big and small accounting companies.
"When reaching its provisional findings, the Competition Commission should recognise that the large company audit market currently produces competitive outcomes for large companies and investors," PwC said. Ernst & Young, KPMG and Deloitte said they would comment once the findings had been published.
The Big Four question why rivals should be given regulatory help to increase market share and note that many big clients doubt if the smaller firms could build up expertise fast enough.
Smaller accountants say that without public intervention, there is no point spending huge sums to expand their networks.
Britain's audit policeman, the Financial Reporting Council, now requires companies to consider changing auditors at least every decade but smaller auditors want tougher measures.
These would include mandatory rotation of auditors every few years, or joint audits, where a smaller firm teams up with one of the Big Four, at extra cost to customers.
The watchdog could put forward incentives for switching auditors rather than more radical, mandatory requirements.
"What we're hoping for is a package of interconnected reforms that would help create a more level playing field, giving additional firms a chance to prove themselves," said David Herbinet, a partner at Mazars.
Whatever the Competition Commission decides, the preliminary findings will be put out to public consultation, and there will likely be global repercussions.
The European Union's approval of a draft EU law to inject more competition into the sector has slowed in recent weeks so there is time to take stock of the UK findings.
The draft law proposes mandatory switching or rotation of auditors every six years and even a market share cap. The U.S. audit watchdog has aired plans for auditor rotation as well.