The Business, Energy and Industrial Strategy Committee, a select committee of the House of Commons in the UK Parliament, published the UK government’s response to the Committee’s report on the Future of Audit on 7 June. The key takeaway in summary is that the government’s response to many of the recommendations is that they are currently, or will shortly be, consulting on the issues raised in the BEIS Committee’s Future of Audit report.
Rachel Reeves MP, Chair of the BEIS Committee, said: “The collapse of Carillion and accounting scandals at Tesco, BT and Patisserie Valerie and others have provided a painful lesson that audit isn’t working. Businesses, investors, pension-holders and the public deserve better. Urgent audit reform is needed, not yet further consultation.
“The CMA (Competition and Markets Authority) and BEIS Committee’s extensive inquiries on audit proposed a range of practical recommendations to improve competition, tackle conflicts of interest and improve the culture of challenge in audit firms. Their response to our report suggests the government is in danger of kicking vital audit reforms into the long grass. We should not wait for the next corporate collapse. The government needs to ignore the lobbying of vested interests in audit and set out a clear timescale for delivering on the substance of the CMA and BEIS Committee’s recommendations”.
Reeves has written to Secretary of State Greg Clark to request the government set a deadline for the conclusion of this consultation process. The correspondence also calls on the government to state whether its intention is to consult on the implementation or the substance of the CMA and BEIS Committee proposals.
The BEIS Committee’s report was published on 2 April and endorsed the CMA’s proposed operational split between audit and non-audit but argued that it may be necessary to go further with a structural break-up in order to tackle the conflicts of interest in the audit market and ensure the professional scepticism needed to deliver high-quality audits.
In its response to the committee, the government said it had asked for an independent review into the quality and effectiveness of audit. This review, the response said: “…will look at audit as a product and what audit should be in the future. It will address the audit expectation gap: the difference between what people think audit does and what it actually does. It will also look at the scope of audit, any changes that may need to be made to it and how it can better serve the public interest.” A report based on this review is expected to be provided to the government by the end of this year.