Brydon will be supported by an advisory board which he will appoint, and will look at what the standards and requirements should be for the UK audit profession in the future.

The CMA paper identified serious competition concerns in the audit sector, as well as proposing changes to legislation to improve the audit sector. It is now putting these proposals out for public consultation. The Kingman review has recommended to government that the Financial Reporting Council (FRC) be replaced with a new independent regulator with clear statutory powers and objectives.

The outgoing chair of the LSE, Donald Brydon previously worked for 20 years at Barclays, during which period he was chairman and chief executive of BZW Investment Management, the company's investment arm, and from 1997 to 2002 he was the CEO of AXA Investment Managers SA. During his six-year tenure as as chairman of Royal Mail he oversaw the privatisation of the company.

Business secretary Greg Clark said: ‘Audit companies need to learn the recent lessons from high profile audit failures and reform to regain public confidence, or they will be forced to do it.’

The Department for Business, Energy and Industrial Strategy (BEIS) said 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.

It will examine 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 public’s expectations from audit.

The 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.

A detailed terms of reference and project plan will be published in the new year.

Report by Pat Sweet, James Bunney