Today, Sir John Kingman has published the final report of the Independent Review of the Financial Reporting Council (FRC) and the Competition and Markets Authority (CMA) has published an interim report on their market study into the audit market.
The Independent Review of the FRC is a comprehensive analysis of the effectiveness of the regulator for audit and accounting, and the Government will take forward the recommendations set out in the review to replace the FRC with a new independent statutory regulator with stronger powers.
The CMA’s interim report on their study into the statutory audit market makes recommendations to improve competition and increase capacity in the audit market. This is central to improving audit quality and I now look forward to the publication of the final report.
There is also a need to consider the standards expected of audits, including whether auditors are assessing the right information, and utilising the right technologies. This question was first raised by industry itself, who proposed a review to look at the future of audit. However, audit reports are prepared for the benefit of shareholders and investors, and it is critically important that they are involved in shaping the future of audit.
This is why I am today announcing a Government commissioned independent review to consider how to improve audit effectiveness. I have asked Donald Brydon, chairman of the London Stock Exchange Group and Sage Group, to chair this review.
This new review, building on the work of the FRC and CMA reviews, will now consider audits as a product and what the future, standards and requirements should be for audits in the future. To ensure the UK’s audit sector remains world leading by constantly looking to upgrade standards, the Brydon Review into UK Audit Standards will consider:
- How far audit can and should evolve to meet the needs of investors and other stakeholders, putting the UK at the forefront;
- How auditors verify information they are signing off;
- How to manage any residual gap between what audit can and should deliver; and
- What are the publics expectations from audit.
The new Review will also test the current model and ask whether it can be made more effective as well as looking at how audit should be developed to better serve the public interest in the future, taking account of changing business models and new technology.
This statement has also been made in the House of Lords