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Inquiry into audit – the reviews

There have been several reviews launched into the audit market over the past 14 months, each looking at different aspects of the profession. Find out more about each review and how they all distinguish from one-another, and also work together.

Sir Donald Brydon’s Review into UK audit standards

Sir Donald Brydon gave the keynote speech at the Audit and Assurance Faculty’s inaugural Audit Conference in Chartered Accountants’ Hall. Read the transcript here.

Alongside the publication of Sir John Kingman’s final reports, Greg Clark MP announced a new independent review into audit standards to be led by Sir Donald Brydon, the outgoing Chair of the London Stock Exchange Group. This review will look at the expectations of stakeholders who rely on company accounts, the scope of the audit product itself, and how assurance can be made more effective for investors.

Current Status

The Terms of Reference for Sir Donald Brydon’s review and the details of the advisory panels have now been published. Michael Izza will be sitting on the auditor advisory panel in his personal capacity. The independent review will be funded by ICAEW from its receipt of fines from disciplinary cases brought by the FRC and paid for by ICAEW. Funding will not be coming out of membership fees. Sir Donald informed the Business, Energy and Industrial Strategy Select Committee that he expects to report to Greg Clark MP before the end of 2019.

Sir Donald issued his call for evidence on 10 April 2019; responses are requested by 7 June.

 

CMA Market Study into the audit market

The CMA launched a formal Market Study into the audit sector in October 2018, looking at choice and competition, resilience of the sector, and incentives for producing robust audits

The CMA published an update paper on 18 December 2018. and are now reviewing further submissions before producing a final report. They issued their final report on 18 April 2019, which sets out their recommendations to address competition issues in the audit market. These recommendations include operational splits for the Big Four’s UK audit work, mandatory joint audit, regulation of UK companies’ audit committees, and a five year progress review by the regulator.

Current Status 

‘The CMA published their final report into the audit market on 18 April 2019 and made recommendations to the Department for Business, Energy and Industrial Strategy for consideration. The Department launched a consultation of the recommendations on 18 July 2019 with a closing date for submissions of 13 September 2019 – ICAEW responded.

 

Sir John Kingman’s reviews into the Financial Reporting Council, and auditor procurement and remuneration

After the collapse of Carillion, the Secretary of State for Business, Energy and Industrial Strategy, Greg Clark MP, commissioned a "root and branch" review of the operation of the Financial Reporting Council, the audit sector’s regulator, in April 2018. This was later extended to include looking at arrangements for auditor procurement and remuneration in October 2018. 

Sir John Kingman published his findings on 18 December 2018. 

Current Status

On 11 March 2019, BEIS issued a consultation on the recommendations made by the Kingman review. Responses were due 11 June 2019. ICAEW responded.

The BEIS Select Committee endorsed Simon Dingemans to be Chair of the FRC in their report on the pre-appointment hearing, and Sir Jonathan Thompson has announced as the next CEO on 18 July 2019.’

 

Business, Energy and Industrial Strategy Select Committee inquiry into "The Future Of Audit"

Rachel Reeves MP, Chair of the Business, Energy and Industrial Strategy Select Committee, announced a parliamentary inquiry into the future of the audit market during a keynote speech in Chartered Accountants’ Hall on 12 November 2018. The purpose of this inquiry would be to look at the proposals presented by the CMA and Sir John Kingman in their reviews, as well as wider quality issues.

The inquiry into the future of audit is ongoing, with the next BEIS Select Committee session on the Future of Audit inquiry scheduled for 13 March 2019. This oral evidence session with include the Rt Hon Greg Clark MP, Secretary of State for BEIS and Debbie Gillatt, Director of Business Frameworks, BEIS.

Current Status

The Government responded to the report on 7 June 2019. Rachel Reeves MP has requested more information from the Government on the planned consultation of the CMA’s recommendations, and the work which BEIS is doing with ICAEW on capital maintenance – the Business Secretary responded on 27 June 2019’. 

On 2 April 2019, the BEIS Select Committee issued its Future of Audit report. Rachel Reeves MP, BEIS Select Committee Chair gave a keynote speech at ICAEW discussing the report and its recommendations.

The Government responded to the report on 7 June 2019.

BEIS Select Committee began an inquiry into Thomas Cook’s collapse on 15 October. Oral evidence has been given by Thomas Cook’s former directors,  EY and PwC, and from the FRC and Insolvency Service during October, however, the inquiry is closed due to the December election. Sir John Kingman also wrote to BEIS Select Committee regretting legislation on audit reform not included in Queen’s Speech, though Andrea Leadsom MP advises the Government is aiming to bring legislation forward in Q1 2020.

 

Professor Prem Sikka review into "Reforming the Audit Industry"

After the collapse of Carillion, John McDonnell MP, the Shadow Chancellor, commissioned a review into the regulation of the audit market to be led by Professor Prem Sikka in May 2018. This was an internal review for the Labour Party rather than a government or parliamentary review.

Professor Prem Sikka published his report on 14 December 2018, the contents of which are being considered by the Labour Party. Labour welcomed the two reports by Prem Sikka on reforming the auditing and corporate governance regulatory system.