Date posted: 20/12/2018 4 min read

Audit: What's Going on in the UK and What Does it Mean Here?

Amir Ghandar, Assurance & Reporting Leader responds to two major reports on audit reform that have been released in the UK this week.

In Brief

  • An update and recommendations from the CMA Audit Services Market Study and Sir John Kingman’s review of the UK FRC was released this week
  • These reports a major milestone in a debate around changes that could ultimately have fundamental impacts on auditing globally
  • There is an opportunity here to expand the dialogue with stakeholders into evolving areas where assurance professionals can make a real difference
Just in time for summer reading and my first short blog, two major reports on audit reform in the UK have been released this week:

Competition and Markets Authority’s (CMA) Audit Services Market Study

An update and recommendations.

Read here

Sir John Kingman’s review of the UK Financial Reporting Council (FRC)

An update and recommendations.

Read here

CA ANZ is engaging with the UK debate and is in conversation with regulators and policy makers watching from here. I've also been close to these developments over the last few years in my former role at the International Federation of Accountants.

In a nutshell, the CMA have proposed:

  • Increased regulatory oversight of the appointment of auditors of UK companies intended to overcome perceived lack of engagement by directors and investors in the appointment process.
  • Mandatory joint audits for the FTSE 350 companies, involving a Big 4 firm working with a smaller firm intended to overcome the current concentration of large UK company audits being performed predominantly by the Big 4 (with the alternative of a market share cap also canvassed).
  • Separation of the audit and non-audit services within firms into different legal entities.

Kingman proposes replacing the UK FRC with a new regulator. In addition to consultation around these proposals, the next step in the UK will be an independent review tasked with recommending what more can be done to ensure audits meet public, shareholder and investor expectations.

Independent review

Read more about the next steps in the UK.

Read more

All of this comes on the heels of a number of high profile corporate collapses in the United Kingdom and a tense public debate on the role of government, company directors, management and auditors during 2018.

Why does this matter and what does it mean for auditors and accountants in Australia and New Zealand?

The reports won't impact immediately but they are a major milestone in a debate around changes that could ultimately have fundamental impacts on auditing globally including here in New Zealand and Australia. This goes to flow on impacts from the regulatory issues as well as bigger impacts on the role of audits and how they are conducted.

"There is an opportunity here to expand the dialogue with stakeholders into evolving areas where assurance professionals can make a real difference and enhance the relevance and value of what we do."

It is not simply performance issues that have led to the enquiries, but even more so product and expectation issues. This is why the next stage of the process in the United Kingdom is so important as it will open up debate on the future purpose and form of audit, what the market demands as well as technological advancements that can be harnessed. There is an opportunity here to expand the dialogue with stakeholders into evolving areas where assurance professionals can make a real difference and enhance the relevance and value of what we do.

Members: we need your input and involvement

It is vital that we examine carefully and form our own views on any proposals here in Australia and New Zealand, in our own context. To that end we will greatly value your input and encourage all CA ANZ members to get in touch with your views on these matters, in particular the CMA's proposals.

We'll keep you posted as this progresses and formal views are formed – there is no doubt we'll be looking for your involvement as we head into a momentous year in the ongoing conversation on the evolution of audit.

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