ICAEW sets out auditor reform position
In its response to the Department for Business, Energy and Industrial Strategy’s (BEIS) initial consultation on the Competition and Markets Authority’s recommendations for reforming the audit market, ICAEW says the proposal to introduce mandatory joint audit for most FTSE 350 companies has not been universally welcomed.
According to ICAEW, FTSE 350 companies are unhappy about the additional management time involved and the inevitable disruption that will result from having to tender for two audit firms, while investors will ultimately have to bear the increased costs of paying for two firms to do the audit work.
Until such time that evidence show that joint audit increases audit quality, shareholders may not welcome the higher costs that joint audit will likely impose on the audited entities,” the ICAEW response said.
However, ICAEW also believed that joint or shared audits would help the challenger firms acquire relevant experience and, “with sufficient time, effort and goodwill”, either could be made to work although both face “significant practical obstacles”. But it warned that challenger firms could become liable for the actions of the Big Four firms on very large and complex audited entities where existing professional indemnity cover may be insufficient.
ICAEW argued the advantage of shared over joint audit is that liability could be apportioned according to which components of the audit the firm carried out. They would also be cheaper because they do not involve the same duplication of work.
ICAEW also urged BEIS not to mandate operational splits in the Big Four firms between audit and non-audit practices. It said there is no evidence that audit partners participating in the overall profits of the Big Four has any effect on the quality of the judgments they make on their audit engagements.
The focus instead should be on strengthening and reinforcing the overall culture within each firm.
ICAEW’s response to the BEIS consultation will be published shortly
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