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January 19, 2011

UK government against radical audit reform

The UK Government is against “radical” reform
of the audit market, as proposed in the recent EC Green Paper, a
letter to the EU consultation on the audit market reveals.

The summary letter also reveals the government
does not welcome increasing the scope of audit.

The Government said the “forced” breaking up
of the Big Four in order to tackle audit market concentration would
have to take place on a global scale and could have “unintended
consequences”.

It does however welcome new ways of organising
audit firms and the expansion of the audit market. Dismissing
mandatory joint audits, the letter said the UK would not support
the ban on non-audit services but instead supports the idea of
group auditors.

Despite several concerns raised over Big Four
only clauses in the past months by the mid-tier firms, the
Government believes that such documents are the responsibility of
the competition authorities, although it does not state why.

The letter suggests enhancing skepticism of
auditors to improve audit quality and enhancing company reports by
adding a section explaining the work of an audit committee within a
listed company.

One of the main issues exposed so far by the
House of Lords inquiry into audit market concentration is the lack
of communication among auditors, stakeholders and audit
committees.

Government opinion contradicts the views of
the profession at a large, saying there is adequate and regular
dialogue in the UK between internal and external auditors and audit
committees.

The summary letter sent from the UK department
of business is the first indicator of the opinion held by the
current coalition government on audit reform.

 

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