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
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.
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“[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,”