We recently reported that the Competition and Markets Authority’s (CMA) proposed introduction of joint audits*, which is being debated in a series of Department for Business, Energy & Industrial Strategy (BEIS) select committee hearings, has been criticised by audit academics and investment managers expressing concerns that the shake-up could risk unintended consequences for auditing. Now, the Big Four have waded in on the debate.
In submissions published ahead of the next evidence session in front of MPs, PwC chairman and senior partner Kevin Ellis said that the firm did not “believe the CMA has made an evidence-based case that these proposals will lead to improved choice or quality”. He also said the proposal “could create significant potential audit risk and disruption to UK companies”.
KPMG’s submission also raised concerns about any implementation of joint market audits and suggested that a market cap was also worth consideration. In the statement, KPMG chairman Bill Michael warned that “an extreme form of ring fencing would have significant unintended consequences, especially with regard to audit quality”.
Furthermore, he questioned “whether the smaller audit firms have the capacity and willingness to take on the volume of complex, high risk audits this is implied by the remedy”.
Deloitte, while not stating a direct opinion on mandatory joint audits, expressed similar concerns that “there are only a small number of audit firms that currently have the capacity, expertise, or international reach for conducting [FTSE 350] audits”.
Ernst & Young refused to be drawn on any conclusion over either mandatory joint audits or any form of market cap, saying it would respond directly to the CMA and share this information with the Committee after doing so.
In a separate statement, the ICAEW told the CMA that it too had concerns over joint audits, believing they could increase costs and timescales of FTSE 350 audits and suggesting that a market cap would be easier, cheaper and quicker to implement.
The hearings continue.
Effective management accounts and company audits
When putting processes in place for effective business administration, sound management accounts will enable better control of your financial situation and awareness of the business in real time. This can be effective not only in detecting and countering fraud, but also in enhancing planning for the peaks and troughs. In turn, while many companies do not need an audit due to rising thresholds, an audit can give comfort to business owners and act as a fraud deterrent.
At Beavis Morgan, we work with our clients to put processes in place which make it easier to run your business, reduce risk and maintain effective management of your company’s working capital.
Contact Steve Govey or your usual Beavis Morgan Partner for further information about how we can assist you and your business.
* Calls for caution over proposed shake-up to the audit sector