Yesterday, the Competition and Markets Authority (CMA) officially announced its review into the audit market.
Members will know that this has been anticipated for some time, and follows this summer’s independent review of the FRC by Sir John Kingman, to which ICAEW responded to the call for evidence.
The CMA review will take the form of a market study and will focus on three main areas: choice and competition; resilience; and incentives for producing robust audits.
The CMA has made clear that if the study finds the market is not working well, it will scrutinise proposals to improve it, including a possible need for legislation.
On Monday, the Financial Reporting Council (FRC) also published a report – 'Developments in Audit' – reviewing their work over the past year to drive the delivery of consistent high-quality audit.
The review highlights key themes, including audit quality, enforcement, investor needs, auditor independence and the assessment of company viability.
As part of this review, the FRC have announced a new strategy – the Audit Firm Monitoring and Supervisory Approach (AFMAS) – aimed at ensuring audit better serves the public interest. It will seek to strengthen the FRC’s capacities on monitoring and enforcement, revise their sanctions framework and provide greater transparency about their findings.
As I’ve stated before, these and other reviews of the audit market are positive developments that should be welcomed by the whole profession. Audit only works if it commands trust; the market must work in such a way that enables society to provide it with that trust, and to hold the profession to account where necessary.
The impact of audit quality extends far beyond the companies being audited – to current and former employees, their families, investors, and of course customers.
I want to reassure members that ICAEW will continue to play a leading role in supporting these reviews, addressing the audit expectation gap and restoring trust.