Challenging and potentially transformational CMA recommendations to shake-up audit
National audit, tax, advisory and risk firm Crowe supports the boldness of the Competition and Markets Authority’s (CMA) challenging yet potentially transformational recommendations to address competition and choice in the audit market.
The CMA’s recommendations include the operational split of the Big Fours’ audit work, more choice to increase resilience by introducing mandatory joint audit, regulation of UK companies’ audit committees and a five year review of progress by the regulator.
As one of the “challenger firms”, Crowe, which is the UK member of the eighth largest accounting network in the world, has played an active role in the debate around audit quality and choice.
In Crowe’s formal responses to CMA papers in recent months, the firm stressed the need to address some of the barriers to entry and expansion in the market for non-Big Four firms. Crowe supports, therefore, the CMA’s recommendation to introduce mandatory joint audits for the FTSE 350.
Crowe also welcomes the proposal for increased regulatory scrutiny of the operation of audit committees, including a focus on ensuring the audit committees report appropriately how they appoint auditors and engage with their work.
Nigel Bostock, Chief Executive, Crowe, said: “Crowe recognises change is needed if the profession is to rebuild public trust in audit and we support the CMA’s efforts and recommendations.
“An environment of transparent financial reporting, high quality audit, and strong and effective regulation is essential for the success of the UK economy.
“We are pleased that the CMA’s recommendations focus on addressing the issues where there has been most concern and have avoided unintended or, indeed, unnecessary consequences for those parts of the audit market that are functioning well.
“The CMA recognises the importance of firms having multi-disciplinary operations and we are pleased that they do not recommend the creation of audit-only firms.”
Steve Gale, Head of Audit at Crowe, said: “We are pleased that the CMA has proposed mandatory joint audits for the larger, listed companies. It is clear that audit firms outside of the Big Four have found it difficult not only to be appointed as auditors but even to be considered. Mandatory joint audit provides the chance for challenger firms to demonstrate their capability and quality.
“Joint audit can help dispel the perception of a cosy relationship between the Big Four auditor and management, as the major issues will need to be considered by both auditors and they will need to come to a joint and agreed opinion.
“We are under no illusion though that firms will have to ‘step up to the plate’. There will be huge scrutiny on the audit quality reviews of the joint audits to see if the quality of the audit improves. That should be the output and must be the key focus of all firms involved.”
Matthew Stallabrass, Head of Listed Companies at Crowe, said: “The CMA proposals will give challenger firms access to the boardrooms of the largest companies in the UK and a real opportunity to demonstrate their skills and the value they can add.
“There is an opportunity for audit committees to demonstrate their confidence in the non Big Four firms as a joint audit will not be required if they appoint a challenger firm as sole auditor.
“We welcome the measures being proposed by the CMA to provide regulatory scrutiny of the audit committees, acknowledging the importance of the role they play throughout the audit process from hiring auditors to providing robust and constructive challenge to the accounting practices of their companies.”
For more information on Crowe, please visit: www.crowe.co.uk