On 18 December 2018, the CMA published an update paper outlining issues and proposed legislative reforms to stimulate competition and improve audit quality.
The CMA identified a number of issues with the current audit landscape, including:
- Companies choosing auditors with whom they have 'chemistry' rather than those that provide appropriate scrutiny.
- Limited choice, with the Big Four audit firms conducting 97% of the audits of the biggest companies.
- With at least 75% of the revenue of the Big Four coming from non-audit services, auditors' focus appears skewed.
In response to these issues, the CMA proposes to:
- Separate audit from consulting services, either through a structural separation (that is, prohibition of certain firms from providing non-audit services) or an operational split (e.g. the audit business has separate board, chief executive, staff and assets).
- Introduce measures to ensure that audit committees are more accountable and are independent enough to choose the most challenging firms, rather than the cheapest.
- Impose a 'joint audit' regime, which would require two firms (one of which must be a non-Big Four firm) to sign off on the accounts of the audit client.
The CMA invites comments on the update paper by 21 January 2019 and the update paper can be accessed here
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