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January 29, 2019

KPMG UK: non-Big Four firms lack ability for joint audits

By Joe Pickard

KPMG UK has said that it is unrealistic to expect, in the short to medium term, for a non-Big Four firm to have the ability to be involved in joint audits of the UK’s largest and most complex companies on an equal footing with the Big Four.

In its response to the Business, Energy and Industrial Strategy Committee’s (BEIS) Future of Audit Inquiry, KPMG said that any requirement for joint audit would need to recognise the ‘significant implementation and capability challenges’.

The BEIS inquiry was announced last year in November 2018, while the Competition and Markets Authority (CMA) and John Kingman were finalising their own investigations into the audit market and the role of the Financial Reporting Council (FRC), respectively.

The reviews into the profession followed the collapse of construction company Carillion in January which caused public and political scrutiny into the audit market and the role of the FRC due to the relationship that audit firms have with large listed companies.

While KPMG expressed concerns over the practicality of introducing a joint audit model, it said that it would propose its opinions to the CMA on how a joint audit remedy might work. It noted that the possibility of market caps should be further explored as an alternative.

As wells as the reviews undertaken by the CMA and John Kingman, and BEIS’ current inquiry, the Brydon review is also underway which is set to look at the role of purpose of audit, analysing the so-called ‘expectations gap’.

In its initial response to the BEIS inquiry, KPMG UK chairman Bill Michael said: “There is little point in designing a regulatory framework and market structure if the audit that is delivered is not what stakeholders want. 

“The Brydon Review is, in our view, essential. It will provide much needed context to many of the Kingman and CMA recommendations, and will be critical to the successful sequencing, timing, implementation and, ultimately, evaluation of the many changes.

“We are very keen that this work should be completed comprehensively and as swiftly as possible, and settled before implementing other reforms.”

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