The Financial Reporting Council (FRC) has just published a business case paper to separate the audit practices of the big four firms (PwC, Deloitte, KPMG and EY). Firms should provide a transition timetable to ensure that the principles of the paper are implemented “as soon as practicable” and that they are implemented in full by 30 June 2024 at the latest. The FRC has also asked for an implementation plan to be submitted to them by 23 October 2020.
The objectives of the proposal are to improve audit quality by ensuring that audit practices are “focused above all on delivery of high-quality audits in the public interest”, and to improve audit market resilience by eliminating subsidies between the audit practice and the rest of the firm. “In pursuing these objectives, we will seek to ensure that audit remains an attractive and reputable profession and increase deserved confidence in audit," said the FRC
UK Shareholders’ Association would have liked to see a clear operational split between the audit and consultancy practices based on very different cultural requirements needed for success in audit versus consultancy. Audit culture is likely to be important in achieving the first objective in FRC's business case paper. However, we welcome the action that the FRC has taken as a step to build shareholder trust and confidence in the integrity of audits.