FRC aims to keep the peace as report reignites audit debate

FRC aims to keep the peace as report reignites audit debate

The debate on quality and competition in the UK audit market exploded this week after the Financial Reporting Council released the responses to its paper on the topic

Paul Boyle, the FRC’s chief executive, said he was ‘very grateful’ for all
the contributions and that he was looking forward to ‘hearing the views of
stakeholders’ at a FRC public meeting on 18 September.

But after working through the responses, and having watched the vicious
verbal scrap that erupted between shareholders and firms leading up to the FRC’s
formal announcement, Boyle could be forgiven for looking forward to next month’s
gathering with trepidation.

The desire to control debate on audit quality is strong. For all parties
there is much to lose and much to gain from its outcome. Boyle and the FRC are
going to have their hands full making sense of it all.

It was the response of the Association of British Insurers that kicked off
the fury in earnest. The ABI, whose 400 members account for a fifth of the
investments made on the London Stock Exchange, shocked the investment community
with the proposal that regulators should step in and force the Big Four to shed
clients if they became to dominant.

‘It should be clear to the large accounting firms that, if their share of the
market is deemed to be excessive, they will be obliged to divest part of their
business,’ the ABI said in its response document. The threat of action by the
competition authorities would provide a strong incentive to the development of
choice.’

It didn’t take long for the Big Four to strike back.

Peter Wyman, head of professional affairs at PricewaterhouseCoopers, said the
ABI’s response was ‘brainless’ and ‘from a different planet’. Deloitte’s chief
executive John Connolly maintained that ‘artificial actions are not the answer’
and KPMG said forcing clients to drop a Big Four auditor ‘clearly contravened
good governance’.

And it wasn’t just the Big Four and ABI that were eyeballing each other. The
mid-tier firms also joined the debate. BDO Stoy Hayward said the Big Four had
used the threat of voluntary withdrawal from the audit market as a bargaining
tool to negotiate liability reform.

David Herbinet, head of public interest markets at Mazars, criticised the Big
Four for supporting regulation when it suited them, but fighting it when it
could have a negative impact on their businesses.

‘The Big Four support regulation such as proportionate liability, because it
suits them, but then shy away from market regulation when it does not,’ Herbinet
said.

The lines have been drawn in the sand. The battle for control of the UK audit
market has officially begun.

Share

Subscribe to get your daily business insights

Resources & Whitepapers

Why Professional Services Firms Should Ditch Folders and Embrace Metadata
Professional Services

Why Professional Services Firms Should Ditch Folders and Embrace Metadata

3y

Why Professional Services Firms Should Ditch Folde...

In the past decade, the professional services industry has transformed significantly. Digital disruptions, increased competition, and changing market ...

View resource
2 Vital keys to Remaining Competitive for Professional Services Firms

2 Vital keys to Remaining Competitive for Professional Services Firms

3y

2 Vital keys to Remaining Competitive for Professi...

In recent months, professional services firms are facing more pressure than ever to deliver value to clients. Often, clients look at the firms own inf...

View resource
Turn Accounts Payable into a value-engine
Accounting Firms

Turn Accounts Payable into a value-engine

3y

Turn Accounts Payable into a value-engine

In a world of instant results and automated workloads, the potential for AP to drive insights and transform results is enormous. But, if you’re still ...

View resource
Digital Links: A guide to MTD in 2021
Making Tax Digital

Digital Links: A guide to MTD in 2021

3y

Digital Links: A guide to MTD in 2021

The first phase of Making Tax Digital (MTD) saw the requirement for the digital submission of the VAT Return using compliant software. That’s now behi...

View resource