Mandatory rotation not the silver bullet for increased choice in Audit Market – ICAS

Recommendations for the mandatory rotation of auditors among FTSE 350 companies are unlikely to increase the quality of audit, according to ICAS (the Institute of Chartered Accountants of Scotland).

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Responding to provisional recommendations by the UK Competition Commission that audit firms should be changed every 7, 10 or 14 years, ICAS Director of Technical Policy James Barbour questioned whether the move would be of benefit to audit quality.

“The quality of audit is the fundamental concern behind any recommendations which seek to increase the level of choice in the FTSE 350 market,” said Barbour. “ICAS is concerned that some of the CC proposals could have significant cost implications for firms and the regulator.”

Barbour also raised doubts about whether the proposals would increase choice in the market.

“We are concerned that today’s proposals may not achieve their central aim,” he said. “It remains to be seen how exactly they would expand the pool of audit firms being engaged.”

Barbour also took issue with the Competition Commission’s view that “too often auditors’ focus is on meeting the needs of senior management who are key decision takers on whether to retain their services”.

“The suggestion that auditors are more concerned with retaining clients rather than working in the public interest and in the interest of investors does a disservice to the rigorous work and high level of professionalism of audit professionals,” he said.

Barbour welcomed the Competition Commission’s move to ban contractual clauses requiring that an audit must be undertaken by a Big Four firm.

“This is one a number of positive aspects to the CC proposals,” Barbour said. “The decision not to further restrict the supply of non-audit services by auditors to their audit clients is also to be welcomed.”

Barbour noted that today’s are interim proposals, and said that ICAS looked forward to continuing its engagement with the Competition Commission and other bodies on continuing efforts to improve the audit market.

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