This week, the UK’s Competitions and Market Authority (CMA) released a paper outlining serious competition concerns and proposing changes to legislation to improve the audit sector off the back of an independent review by Sir John Kingman.
In a bid to break up the dominance of the big four audit firms, the CMA have proposed a structural break up between the audit and non-audit businesses into separate operating entities.
It has also called for the UK’s largest companies to be audited by at least two firms, with at least one outside the big four, to give mid-tier firms access to larger clients to develop their experience and credibility while ensuring a cross-check on quality.
Lastly, the CMA have proposed close scrutiny of audit appointments so as to prevent firms from choosing auditors with the best “cultural fit” or “chemistry” rather than those who offer the toughest scrutiny.
“Addressing the deep-seated problems in the audit market is now long overdue,” said CMA chair Andrew Tyrie.
“Most people will never read an auditor’s opinion on a company’s accounts. But tens of millions of people depend on robust and high-quality audits. If a company’s books aren’t properly examined, people’s jobs, pensions or savings can be at risk.”
Chartered Accountants Australia and New Zealand assurance and reporting leader Amir Ghandar said the proposals raised important questions on the future of audit and its possible implications on the Australian market.
“The Competition and Markets Authority and Kingman Review have triggered a range of bold questions about the future and regulation of audit in the United Kingdom and are an opportunity to look at some overdue questions about how audit works and how it serves the broader economy,” said Mr Ghandar.
“It’s not necessarily just a performance issue in audit, but more so a product and expectation issue. This is why the next stage of the process in the United Kingdom is so important as it will open up debate on the future purpose and form of audit, what the market demands as well as technological advancements that can be harnessed to meet evolving needs.
“It is important that the profession in Australia and New Zealand watch these developments in the United Kingdom and elsewhere carefully and that we form our own views about any proposals in our own context and stay involved. The audit profession here is highly regarded internationally for its contribution on policy and is dedicated to maintaining audit quality.”
Jotham Lian is the news editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.