UKSA and ShareSoc made a joint response to this consultation. The key points we made were:
We believe that there is competition in the market for audit services, although in the case of FTSE 100 companies, market competition is limited – wider choice and more competition would be beneficial.
Nonetheless, competition does not necessarily lead to improved quality which is the main concern about audit at present.
We believe that the main problem lies in the way in which audit services are procured. We recommend that:
- The regulator (the FRC) should work with preparers and users of financial reports to develop a specification for audit services which is fit for purpose in relation to current accounting standards.
- There should be a stakeholder group within each company which should be involved with the audit committee in the procurement of the audit contract. Both the audit committee and the stakeholder group should receive appropriate training as and when required.
- Training should be provided either by the appropriate regulator or accredited training providers. Accreditation should be by the government or regulator working in conjunction with the Chartered Institute of Purchasing and Supply (CIPS).
- The regulator or a similar body should carry out a review of a sample of audit procurements each year to ensure that the process is rigorous and is performed in a spirit of open and fair competition and with a view to the achievement best value for money rather than lowest cost.
- The members of the stakeholder group should meet formally on at least a six-monthly basis with the audit committee and informally as required to allow stakeholder oversight of the work of the external auditor.
- Stakeholder groups should have the opportunity to review and comment on the work of the internal audit team.
- FTSE 100 companies should be given positive encouragement to implement ‘reverse marketing’ programmes to encourage mid-tier audit practices to acquire the necessary breadth of resource and experience to carry out audits for them. This could include approaches such as splitting the audit between two firms.
- Firms providing audit services to large companies and PIEs should not be allowed to sell consultancy services.
- The regulator (currently the FRC) should use the teeth it already has to apply strong sanctions against individuals within the audit and accounting industry who fail to carry out appropriately high standards of work. This is likely to mean disqualification from practicing in the same way that doctors can be disqualified in cases of professional negligence.
Our full response comprising covering letter and answers to the questions posed, together with the consultation document are in the links below.