The big four accountancy firms have hit back at a report saying companies are overpaying for lower-quality audits because of a lack of competition.

The Competition Commission's review into how Ernst & Young, Deloitte, KPMG and PwC audit 90% of UK-listed blue-chip businesses said they were "insufficiently independent from executive management and insufficiently sceptical in carrying out audits".

While the commission found no evidence of collusion between the four, it said there was a restricted amount of competition in the market. As a result "companies are offered higher prices, lower quality and less innovation" than would be the case in a more competitive market.

David Barnes, Deloitte's UK head of public policy, said: "It is not our experience and we don't believe the evidence supports the contention that current market conditions have led to unnecessarily higher prices, lower quality or less innovation."

Simon Collins, chairman and senior partner of KPMG in the UK, said: "Audit objectivity and appropriate levels of scepticism are the mainstays of what we do."

The commission attacked the cosy relationship between auditors and company managers who decide which accountancy firm to appoint, and said the market was failing shareholders.

This provoked the strongest reaction from the accountancy firms. Barnes at Deloitte said: "We categorically disagree that auditors typically place the interests of management over shareholders."

Ernst & Young criticised the commission for failing to mention the role of independent directors on management boards. "We think the somewhat stark description in black-and-white terms of the role and power of the finance directors and their motives does not represent the real world as we experience it."

Richard Sexton, head of reputation and public policy at PwC, said: "We are very clear that we report to the shareholders and engage with the audit committee as their representatives. We believe that the Competition Commission have grossly underestimated the critical role that audit committees play in protecting the interests of shareholders."

The commission said it did not want to break up the four accountancy firms, which also provide a wide range of non-audit services to their clients, but that it is looking into measures to weaken their hold on the UK's largest companies, such as forcing firms to rotate between auditors.