Government consultation on CMA audit recommendations

In July 2019, the Department for Business, Energy and Industrial Strategy (BEIS) published an initial consultation on the recommendations made by the Competition and Markets Authority (CMA) following its market study on the statutory audit services market, final report of which was published in April 2019.

The report recommended that the Government implement a package of remedies designed to increase the effectiveness of audit committees across FTSE350 companies, to increase market resilience and the choice of statutory audit providers, and to address audit quality concerns.

The Government are broadly supportive of the CMA's recommendations and is seeking views on the following recommendations:

• Audit committee scrutiny – The CMA recommended that audit committees should be more closely regulated by the new Audit, Reporting and Governance Authority (ARGA), the proposed successor body to the Financial Reporting Council. In particular it recommends that the ARGA should have the power to set minimum standards for the appointment and oversight of auditors and to take remedial action where appropriate.
• Joint audits and peer reviews – The CMA proposed that FTSE 350 audits should be carried out jointly by two firms, at least one of which to be outside of the Big Four (subject to certain exemptions).
• Market resilience – The CMA suggested various measures to mitigate the risk of the failure of a Big Four firm, including greater monitoring of audit firms by the ARGA.
• Non-audit services – The CMA proposed that firms should be required to introduce an operational split between the audit and non-audit practices of the biggest audit in the UK.

The consultation closed on 13 September 2019.