Rachel ReevesMP, Chair of the Business, Energy and Industrial
Strategy (BEIS) Committee has today (Tuesday), commented on
the Competition and Markets Authority proposals on the audit market
and the separate report by Sir John Kingman report on the Financial
Reporting Council (FRC).
MP, Chair of the Business,
Energy and Industrial Strategy
Committee said: “Recent accounting
scandals and the failure of audits at companies such as Carillion
have made it clear that it can no longer be business as usual for
the Big 4 or the audit market which they
dominate. The audit sector is beset by conflicts of
interest, a confused sense of its purpose and a lack of
competition. That needs to come to an end.
“The security of people’s jobs and pensions rely on
audits providing a true picture of the financial health of a
business. The CMA’s proposals are welcome and get to the heart of
concerns about market dominance and the conflicts of interest
which jeopardise audit quality. The dice have been loaded in the
Big Four’s favour for far too long and the CMA is right to
identify some of the tough remedies which could be needed to fix
this broken market.
“Kingman rightly identifies the FRC as taking too consensual
approach to its work. As was witnessed in the case of Carillion,
the FRC has been guilty of being too timid and too reluctant to
use the powers it has to tackle audit failure. In the future, we
need a regulator who is willing and able to identify the signs of
corporate failure and step in before it happens rather than
picking up the pieces in the aftermath.
“The CMA and Sir John Kingman inquiries outline a range of
measures to help ensure the audit market is fit for purpose. But
these reports need to be acted upon, not left to gather dust. In
our inquiry on the future of audit beginning in the New Year we
will take a close eye to the CMA and Kingman recommendations and
examine what needs to be done to deliver on these reports and
ensure they bring about the reform needed to improve the audit
market and audit quality”.
Background: The BEIS Committee’s inquiry on the
future of audit will kick off with public evidence
sessions in the New Year. The Committee’s inquiry will focus on
the likely impact of the CMA market study and the review of the
FRC in improving quality and competition in the audit market and
reducing conflicts of interest. The Committee intends to feed
into the CMA study and ensure audit reform is linked to coherent
reform of the wider corporate governance agenda.
The Committee intends to begin evidence hearings in January.
Witness details will be announced in due course but the Committee
inquiry will hear from witnesses from the Big Four and
‘challenger’ accountancy firms, Audit Committee chairs, CFOs from
FTSE350 companies, institutional investors, as well as
representatives from the FRC & the ICAEW, outside experts and
Sir John Kingman.
