In July 2021 UKSA and ShareSoc and made a joint submission to the Department for Business, Energy and Industrial Strategy (“BEIS”) on their consultation document “Restoring trust in audit and corporate Governance.” (6/7 of the authorship came from UKSA!). BEIS is now known as the Department of Business and Trade (DBT).
We were deeply sceptical about BEIS’s proposal to force audit firms to share audits.
In Section 8 of their consultation document, the Government proposed to force audit firms to share audits with smaller competitors. One paragraph is copied below.
“8.1.2 The CMA’s proposal to address choice and barriers to entry was to introduce a mandatory joint audit regime for FTSE 350 companies. The joint audit regime would require two audit firms to sign off companies’ accounts, of which at least one must be from a smaller firm (a so-called “Challenger” firm). The CMA recommended that the audits of the largest and most complex companies that would not be suitable for a joint audit should instead be subject peer review mechanism overseen by the regulator whereby a challenger firm would review an audit or part of an audit undertaken by a company’s appointed auditor.”
We were deeply sceptical about the feasibility of this proposal. Question 61 of the consultation document asked:
“Q 61. Should the ‘meaningful proportion’ envisaged to be carried out by a Challenger be based on legal subsidiaries? How should the proportion be measured and what minimum percentage should be chosen under managed shared audit to encourage the most effective participation of Challenger firms and best increase choice?”
Our answer covered three pages in paragraphs 208-217 of our response document.
While our response was worded in the formal polite language required of such documents, anyone reading it would understand that we were saying, “this is a daft idea which will not work.”
On Sunday 16 February 2025 the Financial Times carried a story:
“UK ministers explore further scaling back audit reform legislation” (paywall)
The FT’s subtitle summarised the message: “Ministers discussed ditching a measure forcing Big Four accounting firms to share audits with smaller firms.”
