Yesterday, the BEIS committee released a report which called for the audit and non-audit businesses of the Big Four in the UK to be fully separated.
For its review into the “broken” audit market the committee called on all major stakeholders in the sector - including the Big Four, ICAEW, the Financial Reporting Council (FRC), FTSE 350 CFOs, investors and outside experts. It came up with more than 30 recommendations in total covering areas such as audit fees, competition, independence, regulation and quality.
The purpose of the inquiry was to ensure that results of both the CMA and Kingman reviews are acted on.
As well as the Big Four break-up, the committee proposes a segmented market cap and the use of joint audits on a pilot basis for more complex audits, as well as introducing more frequent audit rotations of seven-year non-renewable terms with a cooling-off period of three years, if there is an operational split.
It backs the Kingman Review and the government’s endorsement of the plan to replace the FRC with the Audit, Reporting and Governance Authority and its beefed-up powers.
However, it rejects the audit profession’s defence of an “expectation gap” – particularly, it says, from the Big Four and Grant Thornton, to “paint the crisis in audit as a perception problem”. It points out that 27% of audits reviewed for 2017/18 did not meet FRC quality standards and argues that there is instead a “delivery gap” and a “serious failure of audit to deliver on its own current terms.