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CMA proposes reforms to improve competition in audit sector

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Dec 18, 2018

On December 18, 2018, the Competition and Markets Authority (CMA) published an update paper outlining serious competition concerns and proposing changes to legislation to improve the audit sector for the benefit of savers and investors alike. It is now putting these proposals out for public consultation.

Following the launch of its market study in October, the CMA has identified a number of reasons why it believes audit quality is falling short:

  • companies choose their own auditors, and as a result we have seen too much evidence of them picking those with whom they have the best ‘cultural fit’ or ‘chemistry’ rather than those who offer the toughest scrutiny
  • choice is too limited, with the Big Four audit firms conducting 97% of the audits of the biggest companies
  • auditors’ focus on quality appears diluted by the fact that at least 75% of the revenue of the Big Four comes from other services like consulting

In order to address these concerns, the CMA is proposing legislation to: separate audit from consulting services; introduce measures to substantially increase the accountability of those chairing audit committees in firms, and impose a ‘joint audit’ regime giving firms outside the Big Four a role in auditing the UK’s biggest companies.

Review the press release on the UK Government's website.

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