Managed shared audits

Original recommendation

The CMA study recommended a mandatory joint audit, to increase the capacity of challenger firms, to increase choice in the market and thereby drive up audit quality. It recommended that there should be initial limited exceptions to the requirement, based on criteria set by the regulator – mainly the largest and most complex companies. It recommended that any company choosing a sole challenger auditor should also be exempt. It indicated that audits of exempt companies may be subject to rigorous, realtime peer reviews commissioned by and reporting to the regulator. (Source: CMA)


The core of the Government’s proposal is a managed shared audit requirement for UK-registered FTSE 350 companies. This form of shared audit would see an audit firm appointed to lead the group audit, for which it bears the overall responsibility and liability. When tendering the statutory audits of entities within the group, companies would be required to appoint a Challenger audit firm to conduct a meaningful proportion of the statutory audits. The requirement would apply across the FTSE 350, giving the audit firms the opportunity to gain exposure to the statutory audit engagements and audit committees of the largest and most complex companies, and giving those companies greater choice of auditor.

‘Meaningful’ would be defined and calculated with reference to one or more of the total audit fee (in the prior year), group revenues, profits and assets of the company, with the Challenger’s proportion to be no less than 10% of these criteria and preferably closer to 30%. The requirement would be phased in by requiring companies, acting through their audit committees, to adopt Managed Shared Audit when their audit contract is re-tendered, rather than at an annual reappointment.

A reserve power for the Secretary of State is proposed to allow the regulator to introduce a market share cap. This would be operated following a joint review by BEIS and the regulator, if mandatory shared audits do not bring about the desired change to the FTSE 350 audit market within a reasonable period of time.

Government response

The Government will legislate to require UK-incorporated FTSE 350 companies to appoint a challenger as sole group auditor or, alternatively, appoint a challenger firm to conduct a meaningful proportion of its subsidiary audits within a shared audit. This ‘managed shared audit’ requirement will be introduced on a phased basis. In recognition of the scale and complexity of certain audits, the requirement will be subject to an exemption's regime that ARGA will operate.

In addition, the Government will make powers available for ARGA to operate a ‘market share cap’, either in the event of a significant firm collapse or in the event that further intervention is required once managed shared audit has had an opportunity to take effect. The Government and the regulator will continue to work together to identify further non-legislative opportunities to increase choice in the audit market and to stimulate a pipeline of potential market entrants.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.