Firms face audit shake-up in wake of UK watchdog report

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Firms face audit shake-up in wake of UK watchdog report

Companies will need to look past Big Four for joint audit, writes Fearghal O’Connor


Mazars managing partner Mark Kennedy
Mazars managing partner Mark Kennedy

A British competition watchdog report is set to spark major changes in Ireland’s audit sector, according to one industry expert.

Changes in Britain could force big companies to choose a ‘non-Big Four firm’ as a joint auditor and this would have a knock-on effect in Ireland, where audits of the biggest companies are still carried out by the world’s four biggest accountancy firms – KPMG, Deloitte, EY and PWC.

“Because we are so close to the UK economy – as Brexit has shown – changes in the UK have an impact here,” said Mark Kennedy, the managing partner at mid-tier professional services firm Mazars.

“We’ve always looked to the UK in terms of our corporate code and our accountancy and audit standards. A change in their ways of doing things – and the consequences for companies be they good or bad – is definitely something that is relevant here,” he said.

On Thursday, Britain’s Competition and Markets Authority (CMA) published its final report from a high-profile review with recommendations to address serious competition problems in the UK audit industry.

The CMA review of the sector came in the wake of high-profile company collapses, such as that of the massive contractor Carillion.

It recommended the separation of audit from consulting services, mandatory ‘joint audit’ to enable firms outside the Big Four to develop the capacity needed to review the UK’s biggest companies, and the introduction of statutory regulatory powers to increase accountability of companies’ audit committees.

The move towards mandatory joint audit could see listed companies for the first time look beyond the Big Four for audit services, said Kennedy.

“That would help dispel the spurious claim that is sometimes made that the smaller firms can’t work in this market,” he said.

“The debate about auditing is not just a UK phenomenon, it’s a global phenomenon, ” said Kennedy.

“It all goes back to the same issue: corporate failure over the last 30 or 40 years. Audit reform has previously been implemented here in Ireland but in the UK incidents in the past couple of years have brought back a focus to that because of a feeling that it did not go far enough.”

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Like the UK – where the competition authorities have become involved – the audit market in Ireland is “an oligopoly”, said Kennedy.

“Our regulator has recognised that competition and choice is an issue so the CMA coming out as it has in this report has relevance from a global perspective,” he said, adding that the publication of a second UK report on the future of the industry – the Brydon report – will also have huge relevance for Ireland.

“As the UK often is, it is the world leader in a lot of the thinking about professional issues.

“We also have a lot of UK companies in Ireland and the specific recommendations in this report are going to impact those companies in a practical way, particularly the recommendations around joint audit.

“For example, it would have an impact on a big insurer where the Irish business is quite tied into the UK business just because of geography.”

Sunday Indo Business

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