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The audit sector in need of robust reform
18 December 2018
UK companies have forgotten what an audit is for, and have too limited a choice. Added to this the Big 4’s focus on quality has been diluted. These are the key reasons why the Competition & Markets Authority believes that audit sector currently isn’t working.
Outlining its reforms to improve competition in the sector is said UK companies choose auditors for ‘cultural fit’ and ‘chemistry’, rather than those who offer the toughest scrutiny.
The CMA felt choice was too limited, with the Big 4 conducting 97% of the audits of the biggest companies.
The fact that at least 75% of the revenue of the Big 4 comes from other services like consulting also meant auditors’ focus on quality appears diluted.
To address these concerns the CMA wants to see legislation which separates audit from consulting services; introduce measures to substantially increase the accountability of those chairing audit committees, and impose a ‘joint audit’ regime giving firms outside the Big 4 a role in auditing the UK biggest companies.
CMA chair, Andrew Tyrie, said: “Addressing the deep-seated problems in the audit market is now long overdue. 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.”
CMA is now consulting on what it believes are robust reforms, but it admitted that these intractable problems may take some years to ‘sort out’.
Tyrie stressed that if it turns out that the proposals are not far-reaching enough then the CMA will persist until the problems are addressed.
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