Controversial now, conservative later

You will remember the FRC has already concluded that there are too few big
firms and the MPG is the body tasked to find a solution.

We now know that one proposal that was on the table was forcing the Big Four
to spin off their audit arms. Apparently, this would have created a healthier
market for the mid-tier firms. The very idea of spinning off the audit arms
would have sent shockwaves of horror through the Big Four – if it had been
pursued. But reports in the press suggest the idea has now been scrapped.

It’s difficult to see what it really would have done for the audit market,
apart from create a good deal of animosity at the enforced changes. But there
real question is why has the news been leaked now?

Obviously someone feels they have something to gain by having it in the
newspapers. The question is what will follow? The spin-off idea is a sign that
the FRC was originally working on some radical ideas and that it would intervene
to alter the current state of the market.

But considering an idea and putting it into practice are two different
things. Regulators are obliged to think of the most radical proposals and weigh
up whether they should be implemented. It’s a common method for establishing a
sound framework for thinking about a problem.

It’s more likely that having killed the spin-off plan, the MPG will rein back
to a much more conservative position. Do not be surprised if the final report in
April contains very little that is scary at all.

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