Following the release of the contentious Oxera study into the state of the
top end of the audit market, the Financial Reporting Council last week published
its own discussion paper to identify a route forward.
The intervening weeks between the publishing of the report, the fiery
stakeholder meeting and the release of the paper do not seem to have brought the
The paper asks some very broad questions on what should be done to improve
competition, reduce the risk of one of the Big Four exiting the market and the
disruption such an event would cause.
Little is ruled out in the document, although the body arguet hat ‘the
current level of audit fees do not represent a material risk to confidence in
corporate reporting and governance’.
It also seemed to frown on some form of ‘costly’ regulatory intervention to
increase choice, such as mandatory auditor rotation, the forced break-up of Big
Four firms, mandatory transfer of clients to a non-Big Four firm or setting up a
state-backed audit firm.
‘Increased choice is only likely to be achieved if the propensity of non-Big
Four or new firms to enter the market is increased together with the propensity
of large company audit committees to purchase services from these firms,’ argues
Interested parties have until 4 August to make their feelings clear on the
paper. Following that there will be another stakeholder meeting on 18 September.
The FRC intends to publish another paper seeking views on ‘options for
mitigating those risks that are considered to be most significant’ after this
With such baby steps being taken, it is still unclear when actually policy
decisions will be taken.
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