RSS feedsThe Financial Reporting Council has this morning released its final 15 recommendations for increasing audit choice in the market.
The exercise follows over a year's deliberation, open consultation and a whittling down of hundreds of suggestions by the Market Participants Group.
The group was voted in last year in an effort to come up with solutions that would be market-led.
Convenor of the MPG, and FRC chief executive, Paul Boyle said: 'Our consultation with stakeholders during 2006 revealed a preference for market-led, rather than regulatory, actions to address the risks arising from concentration in the audit market. The Group’s recommendations have the potential, over time, to reduce the barriers to market efficiency. The effectiveness of the Group’s recommendations will be determined principally by the choices made by companies, investors and audit firms.
'The FRC is grateful to the members of the Market Participants Group who have worked constructively to develop these recommendations. We are also grateful to the individuals and organisations who submitted responses to the Group’s provisional recommendations.'
The MPG's final recommendations:
1. The FRC should promote wider understanding of the possible effects on audit choice of changes to audit firm ownership rules, subject to there being sufficient safeguards to protect auditor independence and audit quality.
2. Audit firms should disclose the financial results of their work on statutory audits and directly related services on a comparable basis.
3. In developing and implementing policy on auditor liability arrangements, regulators and legislators should seek to promote audit choice, subject to the overriding need to protect audit quality.
4. Regulatory organisations should encourage participation on standard-setting bodies and committees by appropriate individuals from different sizes of audit firms.
5. The FRC should continue its efforts to promote understanding of audit quality and the firms and the FRC should promote greater transparency of the capabilities of individual firms.
6. The accounting profession should establish mechanisms to improve access by the incoming auditor to information relevant to the audit held by the outgoing auditor.
7. The FRC should provide independent guidance for audit committees and other market participants on considerations relevant to the use of firms from more than one audit network.
13. Regulators should develop protocols for a more consistent response to audit firm issues based on their seriousness.
14. Every firm that audits public interest entities should comply with the provisions of a Combined Code-style best practice corporate governance guide or give a considered explanation.
15. Major public interest entities should consider the need to include the risk of the withdrawal of their auditor from the market in their risk evaluation and planning.
