Mazars calls for joint audits for UK listed companies
In Mazars' response to the Competition and Markets Authority (CMA) statutory audit market study, it says that it is ‘fully supportive of changes which propose to create a genuinely competitive audit market that addresses stakeholders’ needs’ and pushes for joint audits
5 Nov 2018
The firm responded to the body’s invitation to comment, with a letter dated 30 October 2018, saying that the study will improve the market:
‘Substantial reform of the UK audit market is urgently needed. In our opinion, its current composition with excessive levels of concentration, which have persisted for decades, poses a direct threat to audit quality.
‘The challenges of maintaining an orderly market while protecting against conflicts of interest, ensuring the market remains innovative in the context of changing stakeholder expectations, and mitigating against the risk of one of the four largest firms leaving the audit market, for whatever reason, are substantial and have to be faced and addressed.’
The letter goes on to say that Mazars supports both an independent review of the ‘current and future needs of investors and stakeholders’ and wide-ranging reforms. Central to these reforms, the firm believes, are market share caps ‘with joint audits at the upper end of the FTSE350’.
Mazars believes that a market cap would ‘reduce the Big 4 market share in both the FTSE350 and the rest of the listed market to 80% after 5 years’. Joint audits are a feature of the French audit market, touted as reducing concentration and improving both quality of audit and innovation in the market. They typically feature a longer rotation period (24 years) compared to single auditors, which are limited to 20 years for public interest entities (PIEs). The European Union currently supports this practice, believing that applied widely it would ‘reinforce the professional scepticism and help to increase audit quality’.
Phil Verity, Mazars UK senior partner, said: ‘We believe that substantial reform to the audit market is critical to the sustainable success of our largest companies and the wider economy. This debate has implications far beyond the UK’s borders, and it is our responsibility to provide meaningful leadership on what is a global issue.
‘We are pleased to share the detail of our response, and welcome discussion on proposed solutions and implementation’.
In a response published on the same day, the ICAEW also expressed support for the study:
ICAEW welcomes the opportunity to contribute to the Competition and Markets Authority’s market study into the supply of statutory audit services in the United Kingdom, which it launched on 9 October 2018… [and] believes the natural follow-on to the work of the CMA and the Kingman Review should be a fundamental and independent examination of the role of audit itself. The expectations of investors and wider society have quite rightly increased in recent years, and we need to ensure that audit keeps pace. If that means extending assurance and embracing new tools and new technology, then we must look at that.’
Report by James Bunney