Competition watchdog calls for major shake-up of audit market
The competition regulator is pushing for a major overhaul of the UK’s accountancy market as part of a shake-up of the scandal-hit industry.
The Competition and Markets Authority (CMA) said auditing and consultancy services should be entirely separate.
Scrutiny of the big four accountancy firms KPMG, Deloitte, PwC and EY has intensified in recent months, fuelled by the failures of some major companies.
The CMA’s recommendations follow the collapse of high-profile companies such as construction firm Carillion, which was audited by KPMG.
CMA chairman Andrew Tyrie said: “People’s livelihoods, savings and pensions all depend on the auditors’ job being done to a high standard.
“But too many fall short – more than a quarter of big company audits are considered sub-standard by the regulator. This cannot be allowed to continue.”
The CMA recommends a split between audit and advisory businesses, with separate management and accounts, a mandatory joint audit system, with a Big Four and a non-Big Four firm working together on an audit, as well as regulation of those those appointing auditors.
Responding to the CMA’s recommendations, the CBI said that improving the quality of audits must be “paramount” but warned that some of the proposals risked damaging the UK’s reputation.
John Allan, CBI president, said: “The UK’s position as a world leader on corporate governance is highly-prized. But with the eyes of the world on the UK, some CMA proposals risk damaging that reputation.
“Improving the quality of audit to enhance public trust and investor confidence must be paramount. But the guiding star for any reforms must be a focus on what works.
“Mandating joint audits will add cost and complexity for business with no guarantee of better outcomes. Operational splits could restrict access to the skills required to carry out complex audits.
“Other ideas, such as greater scrutiny of audit committees by the regulator have merit and could help guard against high-profile corporate failures, which have rightly prompted searching questions.
“With the Brydon review yet to report a false move now could create yet more uncertainty and undermine confidence in corporate Britain.”
Rachel Reeves, chair of the Commons Business, Energy and Industrial Strategy Committee, said: “We welcome the CMA’s recommendations aimed at addressing what are serious failings in the audit market and ending the stranglehold of the Big Four.
“We agree that it is high time that their audit work is separated out from their consultancy services to tackle the conflicts of interest that have persisted for too long.”
The recommendations come just weeks after it was announced that the UK’s accountancy watchdog the Financial Reporting Council (FRC) is to be abolished and replaced with an independent statutory regulator.
Business Secretary Greg Clark announced that the FRC would be replaced by the Audit, Reporting and Governance Authority following a government commissioned review led by Sir John Kingman.