Maintaining the momentum on audit reform

6 October 2020: Despite numerous challenges to audit reform over the past year, as Sir Jon Thompson reaches 12 months at the helm of the FRC he is keen to show ICAEW members that change is underway.

At an online event on Wednesday 14 October, Financial Reporting Council (FRC) CEO Sir Jon Thompson will join ICAEW Chief Executive Michael Izza to discuss the transformation of the FRC into the new Audit Reporting and Governance Authority (ARGA), and his vision for the future of audit and long-term attractiveness of the audit profession.

Ahead of a critical year for audit reform in 2021, Thompson will demonstrate that,

despite an election, ongoing Brexit wrangles, the COVID-19 pandemic and the loss of his chairman, progress has been made.

The three major reviews into the audit profession commissioned by the government – Sir John Kingman’s review of the FRC, the CMA’s market study of statutory audit services and Sir Donald Brydon’s review into the quality and effectiveness of audit – put forward 157 remedies and recommendations for change in the audit sector.

The headline transformation of the FRC into new regulatory body ARGA will require time in the Government’s legislative programme. Parliamentary interest in reform continues and the profession awaits the publication of the Government’s composite consultation on audit reform, due at the end of the year.

However, not all of the recommendations require legislation. The FRC has acted on many of Kingman’s ideas, and Thompson has been willing to broker reforms directly with the largest firms themselves. In July, the audit watchdog announced that it expects Deloitte, EY, KPMG and PwC to separate their auditing divisions from the rest of their operations by June 2024. The FRC expects the Big Four to lay out their audit separation plans by 23 October this year – something which so far only Deloitte has revealed.

Thompson has also tweaked the proposal floated by the CMA of mandatory joint audits and proposed an alternative “managed shared audits” approach. In theory, this could involve a Big Four firm as lead auditor taking legal responsibility for and doing most of the audit, with a non-Big Four “challenger” taking on the remainder of the work. The system would still require ministerial approval.

As in his previous roles at the Ministry of Defence and HMRC, Thompson has also embarked on a significant reform programme to change the culture of the FRC, and the watchdog has also announced a significant staff recruitment programme.

With the government’s public consultation due before the end of the year, the speed of audit reform is likely to ratchet up over the coming months. Attendees to ICAEW’s online event will hear Thompson’s perspective on audit reform, his thoughts on the ‘audits of the future’ and his vision for the long-term attractiveness of the audit profession.

You can register to watch the online event here: Michael Izza in conversation with Sir Jon Thompson