Government consults on proposals to reform UK audit market
The Department of Business, Energy & Industrial Strategy (BEIS) has published its consultation on the Competition and Market Authority's (CMA) proposed reforms to the UK statutory audit market.
BEIS is seeking views on the following key proposals within the final CMA report:
Enhanced regulatory oversight of Audit Committees operating within the FTSE 350.
Under this proposal, the regulator would be given greater powers to introduce minimum standards for the appointment and oversight of auditors and to monitor compliance with those standards, taking remedial action where necessary.
The introduction of mandatory joint audits of FTSE 350 companies and proposals for peer reviews of certain other audits.
The joint audit regime would apply to audits of all but the largest and most complex companies. Companies that have appointed a challenger firm as its sole auditor would also be exempt. Under the proposal, no joint auditor should be allocated less than 30% of the total audit engagement fees.
To supplement the joint audit proposals, the regulator should also have the power to appoint peer reviews of audit engagements not subject to the joint audit requirement.
Measures to mitigate the effects of the distress or failure of a ‘Big Four’ firm
Greater responsibility being given to the regulator to monitor the health of audit firms, and intervening when required, in order to preserve and maintain market resilience.
Operational split between audit and non-audit practices
This recommendation proposes the introduction of a strategic and operational split between audit and non-audit practices of ‘Big Four’ firms. The CMA report highlighted that tensions can arise between a firm's non-audit activities and its audit activities.
BEIS is also seeking views on other possible proposals that were not part of the CMA’s core package of remedies but may merit further consideration. These include:
- Remuneration deferral and clawback for partners to discourage irresponsible short-termism.
- Liberalising the current audit firm ownership rules.
- A requirement for the largest firms to share their audit technology with other challenger firms.
- Revisiting the requirements on audit tendering and rotation periods.
The consultation closes on 13 September 2019.