CMA head Lord Tyrie warns Big Four that appetite for audit reform is ‘very strong’
The chair of the Competition and Markets Authority Lord Tyrie today warned the Big Four that the appetite for reform of the audit market is “very strong” in government and parliament.
“I think the market needs to realise, if they don’t already, that the appetite for whatever is required to address this is very strong, both in the government and parliament, and it’s as well for everybody to bear that in mind,” Tyrie told the Business, Energy and Industrial Strategy Committee.
The CMA called for the audit practices of the Big Four to be ringfenced from their consultancy arms in a report published in April.
The report also called for joint audits where one of the Big Four – EY, PwC, Deloitte and KPMG – would jointly audit companies alongside one of the so-called challenger firms.
The report followed a series of scandals, such as the collapse of outsourcer Carillion, where auditors failed to spot serious problems.
“The government knows this has to be addressed,” Tyrie said. “I think parliament is unhappy…with the performance of the existing audit market.”
Since the publication of the CMA’s report KPMG has moved to separate its audit arm from the rest of its business, but not to the extent called for by the CMA.
Today, PwC announced a £30m investment in its audit practice to improve quality.
Committee chair Rachel Reeves MP asked Tyrie if voluntary reforms such as these by the Big Four went far enough.
“We think the proposals that are required to crack the problems…require the proposals we set out in our report and that doing something else risks not addressing adequately those problems,” he said.
Reeves said: “My concern is that if these reforms don’t happen we risk future failures of businesses and future scandals because we haven’t acted when all the evidence is there that tells you we should act.”
Tyrie said the CMA would work with the Beis Committee to continue to urge the government to deliver reform.
“We have both go to press vigorously in order to secure a favourable response,” he said.
“I do persist and we will persist.”
A spokesperson for Beis said: “A strong and competitive audit market is crucial to UK business, and we are committed to bringing forward reforms to ensure the UK continues to offer the highest standards in this area.
“The CMA’s findings provide a strong evidence base for those reforms, and we will publicly consult on any proposed changes.”