The FRC has published a discussion paper on the possible effects of changes to audit firm ownership rules and a consultation paper on the use of audit firms from more than one network.

The discussion paper addresses:

  • ease of entry and the potential for mid-sized firms to gain market share
  • the potential impact of the introduction of outside capital to audit firms on audit quality
  • the impact of the introduction of outside capital on the supply of auditors with appropriate skills and personal qualities
  • the possible decline in audit quality arising from conflicts of interest associated with a firm’s ownership.

The consultation paper sets out draft guidance on circumstances that could influence a group’s decision to use an audit network and lists factors audit committees might consider in assessing group audit arrangements.

The papers also provide an update on the Market Participant Group’s (MPG) 15 recommendations including:

  • the establishment of a working group to develop a code of best practice governance for firms that audit public interest entities
  • the consultation on proposed changes to the Guidance for Audit Committees including new guidance that audit committees should explain to shareholders recommendations for the appointment and removal of external auditors
  • new regulations and guidance to allow incoming auditors access to relevant information held by the outgoing auditor
  • revised corporate governance policy and voting guidelines issued by the National Association of Pension Funds covering auditor selection
  • the establishment of a working group to develop guidance on voluntary disclosure of the financial results of work on statutory audits.