The European Parliament, in its TAX3 report, and the UK’s Competition and Markets Authority (“CMA”), in a report concerning issues related to competition in the UK audit industry, have both recommended measures be introduced to ensure greater separation between audit and consultancy operations of the “big four” firms.
In its report, the UK’s CMA recommended that new laws be introduced requiring the consultancy and audit functions of firms to be “operationally” separated, by having separate management teams, staff, accounts and remuneration policies, with the option of breaking up the functions completely to be revisited in the next 5 years. It also recommended a mandatory collaborative audit process be introduced by way of requiring a second auditor to participate in audits.
The EU Parliament recommended, as part of its final TAX3 report, that the Commission address risks stemming from the “provision of legal advice, tax advice and auditing services” by single firms, and that the Commission should introduce rules for mandatory rotation of auditors every seven years. An EU study published recently concerning audit reform found that market concentration on average remained constant notwithstanding audit reform introduced following the financial crisis.