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December 9, 2010

FRC rejects EC reforms

The UK Financial Reporting Council (FRC) has rejected several radical reforms proposed in the EC’s green paper, Audit Policy: Lessons from the Crisis.

The watchdog dismissed the EC proposals of banning the provision of non-audit services to audit clients, the forcible creation of audit-only firms and mandatory use of joint audits.

However, the FRC supports some of the proposals, including reducing audit market concentration, improving transparency in the audit process, European adoption of ISAs, tightening auditor independence rules and establishing a European Audit Authority as well as more flexibility of firms to operate within different member states.

Surprisingly the Institute of chartered Accountants of England and Wales (ICAEW) has shown support for mandatory joint audits in its response despite a number of accounting firms being in opposition to the idea.

The ICAEW said mandatory introduction of joint audits should be one option explored in a bid to promote competition in the Big Four concentrated audit market.

As part of the House of Lord Economic Affairs committee inquiry KPMG chairman John Griffith-Jones last month said he believed joint audits do not increase competition and may even increase the risk of fraud.

“[Previously] in the UK, whilst not joint audits in the sense of being joined at the top but having more than one audit firm involved, fraud has deliberately got through the cracks by playing two firms off each other in different jurisdictions or different year-ends. I refer particularly to The Bank of Credit and Commerce International and Parmalat,” Griffith-Jones said.

Related article

EC’s Barnier releases audit Green Paper

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