In a paper submitted to a House of Lords committee, the Financial Reporting Council has said the audit market could be significantly improved if the commission’s audit practice was acquired by a smaller firm.
“The government’s decision to abolish the Audit Commission should be used as a catalyst for greater competition in the audit market,” the FRC told the Lords economic affairs committee.
The FRC adds that “if secured by a non-Big Four firm it would enhance their scale and strength and so reinforce their ability to compete. Conversely, if the work goes to the Big Four, the reverse will be true.”
The news will come as further recognition that there is an imbalance in the audit market that needs correcting.
The government announced the abolition of the Audit Commission in August this year and revealed it would sell off it’s internal audit practice, the first privatisation of the new government. The FRC says the commission’s audit practice is the fifth largest in the country, after the Big Four, though none of the work is corporate.
In another submission to the Lords committee, Grant Thornton called for intervention to cap the number of big audit contracts that can be held by any one audit firm.
The House of Lords began its examination of the audit market, and the role of audit, in the banking crisis earlier this week with evidence from three academics.
During the session they heard that it was “unrealistic” for auditors to have blown the whistle on Northern rock, the bank that crashed in 2007. They also suggested that one way to deal with the audit market was to ensure that non-Big Four auditors stay with their clients as they grow into large companies.
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