• Register
Return to: Home > News > ACCA slams CMA’s audit reform proposals

ACCA slams CMA’s audit reform proposals

The Association of Chartered Certified Accountants (ACCA) has criticised the UK’s Competition and Markets Authority’s (CMA) proposals for a reform of the statutory audit market.

In its response to the study, the ACCA said: “While we support the CMA’s study of the statutory audit market, we do not support the CMA’s proposed remedies. We find the proposals to be disproportionate, not sufficiently focussed on the impact of audit quality and not supported by a full range of available evidence.”

While most institutes and accountancy firms have been supportive of the CMA review in essence, a number of its proposals have been criticised and many have called for the CMA to exercise caution before introducing any radical reforms.

The ACCA criticised the proposed introduction of a mandatory joint audit model, suggesting it would just introduce a ‘veneer of competition which may instead further crystallise the distinction between Big Four and challenger firms and codify Big Four involvement in all FTSE 350 audits’.

It added: “Given the lack of available evidence as to its positive contribution to quality, we believe that it would be irresponsible to require joint audit across the FTSE 350.”

It was also critical of the introduction of a market share cap: “The analysis provided by the CMA highlights that a market share cap increases the risk of lower quality audit at least in the short term. It is not in the public interest to implement a proposal which would increase the risk of audit failure.

“The remedy may ultimately reduce choice and therefore competition, and will restrict audit committees’ ability to select an auditor based on quality. This undermines the accountability of the audit committee and reduces transparency.”

The proposal of a market share cap has received mixed responses. While some firms have argued that it will allow for the mid-tier to enter the FTSE 350 market, concerns have been expressed that it would create a risk of ‘cherry picking’. The ACCA said that the ‘risks of such ‘cherry-picking’ are a consequence of the design of the CMA’s intervention’.

In its initial review the CMA asked for respondents to comment on whether the Big Four should be compelled to license their technology platforms to mid-tier firms. This was raised as a possible method of combating the different resources between the Big Four and mid-tier firms to invest in technology - something which could be viewed as a potential barrier for the mid-tier to enter the FTSE 350 market.

The ACCA said that the negative effects of the Big four licensing their software would be wide ranging: “Sharing technology platforms would reduce competition and innovation in audit as it would reduce diversity in audit methodologies. Therefore we cannot support this proposal.”

Looking beyond the initial CMA review, the ACCA said: “ACCA believe that concerns over financial reporting, corporate governance and the wider commercial environment go far beyond audit. It is therefore sensible to coordinate a single set of responses that incorporate the outputs of the final CMA study, Kingman review and BEIS inquiry rather than acting individually.”

Top Content

    HONG KONG NATIONALS: UNDERSTANDING VISA AND TAX WHEN MOVING TO THE UK

    Over 2 million Hong Kongers learned recently that they may soon be offered a route to UK citizenship following China’s introduction at the end of June of its controversial Security Law in the territory.

    read more

    SASB IMPLEMENTATION SERIES: COMMUNICATING ESG TO MAINSTREAM INVESTORS

    As part of a series of webinars, the Sustainability Accounting Standards Board (SASB) took a closer look at how to communicate ESG initiatives and progress to mainstream investors

    read more

    REPORTING AND COMPLIANCE: WHY WE NEED A DATA REVOLUTION

    Commerce no longer adheres to national boundaries: the largest international organisations to the smallest businesses operate in a global market. However, rules for corporate reporting and compliance do adhere to borders, write IMA’s Jeff Thomson and Liv A Watson

    read more

    CORONAVIRUS TIMELINE: REACTIONS FROM THE ACCOUNTANCY PROFESSION

    As the Coronavirus (COVID-19) continues to spread across the world, the International Accounting Bulletin and The Accountant will be collating all the latest news and updates from the profession on the pandemic’s impact.

    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.