London, 19 December 2018 – ICSA: The Governance Institute has today expressed concerns that the UK audit market will not improve unless issues of education, training and trust are first addressed. It also believes that the statutory audit services update paper published yesterday by the Competition and Markets Authority (CMA) presents a missed opportunity to rectify the situation.
The study demonstrates a clear need for reform of the audit market, and this update paper poses 27 questions for the market to consider by 21 January 2019 relating to the study and the six proposed remedies that the CMA has identified: regulatory scrutiny of audit committees; mandatory joint audit or market share cap; additional measures to remove barriers for challenger firms; market resilience; full structural or operational split; and peer review.
As the professional body for governance, ICSA’s focus is on the governance issues raised by recent audit failures rather than the impact of specific accounting decisions and not only on what audit is supposed to achieve and how well it does so, but also on the difference between what audit is supposed to achieve and the public expectation of audit and of auditors. The CMA review falls into the trap of assuming that companies select and pay their own auditors, thereby overlooking the independent role of the audit committee. It also makes the assumptions that more regulation will help the market and that one of the major issues with audit is a result of the dominance of the ‘big four’ audit firms, hence proposals for mandating joint audits and encouraging the use of challenger firms.
In its response to the invitation to comment, ICSA suggested three initial areas needed to be given more attention before proceeding to further action:
Peter Swabey, Policy and Research Director at ICSA: The Governance Institute said: “Unless the issues of education, training and trust are addressed before a decision is made on future action, the review risks creating solutions which fail to address the underlying issues, consideration of which, we believe, should underpin further analysis. Action which promotes the inclusion of challenger firms in the audit market will not serve to improve that market if those firms are performing at a lower standard. This may not be the case, but it does seem to be a widespread perception and should, we believe, be properly tested before further action is taken. It is imperative that the opportunity is taken to bring together all the various reviews of this issue – Kingman, the CMA, the new review being led for the Department for Business by Donald Brydon and the BEIS Committee – to avoid confusion.”
- Ends -
For further information, please contact Maria Brookes, Media Relations Manager:
+44 (0)20 7612 7072
+44 (0)7890 649 143
Notes to Editors: