Competition Commission's Audit concerns being addressed by MEP Karim

22-Feb-2013 @ 17:0

Sajjad Karim Sajjad Karim

Anthea McIntyre Anthea McIntyre

Anthea McIntyre Anthea McIntyre

Reforms to the EU's audit market, currently being led through the European Parliament by Conservative MEP Sajjad Karim, will address concerns raised by the UK's Competition Commission regarding the lack of competition in the sector and the dominance of the 'Big Four' companies.

Mr Karim is currently drafting legislation aimed at improving the standard of audit within Europe, and responding to the demands of investors who seek greater involvement in the audit process.

In its provisional report published today, the Competition Commission (CC) found that competition for audit engagements in the FTSE 350 is restricted, and may require remedies to open up the market to a greater number of players. These include mandatory tendering, mandatory firm rotation, increased audit firm reviews by the competent authority, improved engagement by shareholders and a greater role for audit committees.

Mr Karim's proposals follow a similar approach to the CC's. Concerning the appointment of auditors, he recommended a long period of mandatory firm rotation to prevent excessive tenures, with tendering to take place during the audit engagement to ensure independence is not compromised and both the audit committee and shareholders are regularly consulted on the continuing relationship with the auditor. On shareholder and investor involvement, Mr Karim's report contains a number of proposals in this area, and in particular he has been working hard with international standards setters to improve the audit report.

Mr Karim's report has primarily focussed on audit quality, rather than strictly competition matters, but the provisional report of the CC suggest that improving the role of the audit committee and addressing shareholder and investor concerns may serve both purposes well.

Mr Karim said:

"The Competition Commission's report confirms my view that the status quo is not an option. Audit requires substantial reform across the European Union to open the market and to provide a greater role for shareholders and investors.

"Addressing the lack of competition in the audit market is a matter for competition authorities rather than EU legislators. However, the measures that we adopt on audit quality are bound to affect the market. It is reassuring that the suggestions to be considered by the Competition Commission mirror many of the positive changes included in my proposals which will improve the role of audit committees, the standing of shareholders and the functioning of the audit market in general."

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