The Competition and Markets Authority (CMA) has recommended a shake-up of the auditing sector, making it the latest organisation to call for change following the collapse of Carillion.
It has recommended the separation of audit from consulting services and mandatory ‘joint audit’ to enable firms outside the so-called Big 4 (Deloitte, EY, KPMG and PwC) to develop the capacity to review the UK’s biggest companies.
It has also called for better regulation of UK companies’ audit committees and a five-year review of progress by the regulator.
The CMA’s recommendations follow discussions with audit firms, investors and major UK companies. They also take account of the recommendations of a major report from the Business Select Committee, and the inquiry into regulation led by Sir John Kingman.
CMA chairman Andrew Tyrie said: “People’s livelihoods, savings and pensions all depend on the auditors’ job being done to a high standard. But too many fall short – more than a quarter of big company audits are considered sub-standard by the regulator. This cannot be allowed to continue.
“The government now has three reports to hand. In large part, they come to similar conclusions. Conflicts of interest cannot be allowed to persist; nor can the UK afford to rely on only four firms to audit Britain’s biggest companies any longer. Early action will require legislation – hence the CMA’s proposals.”
CMA’s chief executive, Andrea Coscelli, added: “We look forward to supporting the government as it considers how best to take forward these changes through legislation, alongside Sir John Kingman’s recommendations on regulation and the results from Sir Donald Brydon’s review on the quality and effectiveness of audit.”
