The Financial Reporting Council (FRC) has published its response to the Competition Commission's preliminary report on the statutory audit services market. In its response, the FRC shares the Commission's view that companies need to secure the best auditor for their businesses and the FRC promotes regular re-tendering of the audit. However, the FRC disagrees that mandatory audit rotation and tendering should be implemented. It is concerned that mandatory rotation could have an adverse effect on audit quality and confirms its preference for a "comply or explain" approach to re-tendering.
The FRC does support the Commission on the issue of trying to strengthen accountability of the external auditor to the audit committee. Its recent introduction of extended reporting requirements for auditors and audit committees has increased the extent of matters that auditors are required to report to audit committees and has extended the scope of matters that audit committees must include in their report to investors. The FRC believes these recent changes should be given time to take effect, but states in its response that it would welcome the opportunity to consult with the Commission on assessing the impact of the changes.
On the subject of reporting publicly on the findings of the UK's audit inspection work, the FRC believes that a strong inspection regime is a significant factor in giving confidence to investors. In its response to the Commission, the FRC agrees that the scope for more frequent AQR inspections should be considered, as well as more detailed reporting of review findings.