Interesting developments in the UK audit market

In an environment in which both the United Kingdom's Financial Reporting Council (FRC) and the Competition and Markets Authority (CMA) are fast-tracking reviews of the audit market, on November 8, CITY A.M. reported that KPMG and Deloitte have called for banning nonaudit work performed for FTSE 350 companies. That same day, Reuters reported that KPMG plans to phase out nonaudit work (other than work tied to the audit) performed for its largest listed audit clients in the UK.

CITY A.M. also reported that EY has called for the introduction of a US-style audit regulatory system, which places greater responsibility on company executives to enhance the quality of financial reporting.

Possible outcomes of the regulatory reviews, expected by the end of 2018, include a ban on consulting and tax work to audit clients (listed and large nonlisted, public interest entities), limits on the number of audit clients a firm could have and break-up of the largest firms that audit these companies.

Regulatory reviews came on the heels of criticisms of auditors in light of the collapse of Carillion, a major construction company and supplier of services to the British government, and retailer BHS.