• Register
Return to: Home > News > CC audit chairman comments on "radical suggestions"

CC audit chairman comments on "radical suggestions"

Commenting on its summary of provisional findings released this morning, the Competition Commission (CC) has been receptive to market sentiment that points raised represent a potentially bold challenge to the status quo with regard to audit market concentration.

Laura Carstensen, chairman of the CC's audit investigation group, told IAB the summary contained "some quite radical suggestions" in terms of measures under consultation, and which addressed the fundamental question of "whether there should be a culture shift from relationship-based auditing to something else".

Carstensen explained the remedies proposed addressed "the issues around familiarity - they are a nudge to behavioural change of quite a deep kind. I do regard them to represent, if we go down that route, quite a change, but there is a lot of consultation to come and I think we should discuss it."

In the summary released today, the CC announced findings that auditors tended to have a greater focus on the needs of client businesses' management, rather than those of shareholders.

"This is not a question of anyone behaving badly" said Carstensen, "more of system design - shareholders and investors felt they have very little visibility on auditor selection and the audit process. In actual fact, management tends to come up with recommendation and they tend to go straight through." With this culture in place, she said, "it's unsurprising that auditors get very familiar with management. In that situation, we are asking: where do incentives lie, and could we do something to adjust the situation?".

Addressing concerns raised by PwC UK's UK's head of reputation and public policy Richard Sexton that the CC had "grossly underestimated" the role of the audit committee in protecting the interests of shareholders in a legal environment where auditors are legally prohibited from communicating with shareholders, Carstensen argued: "There is of course a point about preferential communication with some shareholders over others, so we are aware there are limitations - with good reasons - on what can currently happen."
"We do want to consult specifically on whether measures can be introduced - at AGMs for example - to allow more communication to take place" Carstensen added. "The aim is to see what could give shareholders more visibility on the whole process. Information arms you to have a view, and without that, it's very difficult for shareholders to exercise power".

On the subject of mandatory tendering every 7 years as opposed to the 10 currently suggested by the FRC, Carstensen reminded IAB that the findings were still very much at the stage of consultation, and that further recommendations would be contingent on what responses were received.

Commenting further on the subject, Carstensen said "There is evidence there is a price benefit to tendering, but we have to weigh up the costs and benefits - we want to know how we can find a point of equilibrium where the benefits are captured, but in such a way that it is not unduly costly or burdensome."

Concluding that the CC was "Genuinely open minded" on the subject of remedies, Carstensen told IAB she expected today's comments and future findings from the commission to have an impact on the continuing EU debate on audit reform.
"Brussels has a lot of respect for our process as very rigorous and very evidence based. I would expect Brussels to be very interested in what we conclude, and the basis on which we reach it."

Top Content

    France: professionalising advisory in times of transformation

    Six months into Macron’s presidency and as reforms starts to filter through, what are the main considerations for the accountancy profession? Vincent Huck reports from the French Institute for Accountants’ (Ordre des Experts-Comptables – OEC) annual congress

    read more

    France’s next revolution: boosting the economy, with advisory backing

    As French minister for the economy and finance, Bruno Le Maire took the stage at the final plenary session of the 72nd congress of the French Institute of Chartered Accountants (Ordre des Experts-Comptables) in Lille, he faced a somewhat hostile audience who had booed government initiatives during previous speeches. But the well-prepared minister told the French profession what it wanted to hear and left with a standing ovation. Whether the government will deliver what he promises remains to be seen. Vincent Huck reports

    read more

    Editor's letter: Nine seconds to make or break

    Time is relative. When Usain Bolt runs 100 metres in a little over nine seconds, time flies and feels like a fleeting instant of dream. But, when six professionals sitting on a panel meet a question with deafening silence for nine seconds, then time painfully drags on in embarrassment.

    read more

    Digital disruption: Do you know your blockchain and AI?

    Digital disruption and its implications for accountancy firms was the topic of a panel discussion chaired by editor Vincent Huck at the BKR International annual conference held in London in October. Here are some of the highlights

    read more
Privacy Policy

We have updated our privacy policy. In the latest update it explains what cookies are and how we use them on our site. To learn more about cookies and their benefits, please view our privacy policy. Please be aware that parts of this site will not function correctly if you disable cookies. By continuing to use this site, you consent to our use of cookies in accordance with our privacy policy unless you have disabled them.