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February 8, 2023

UK Regulator Tasked with Focusing on Audit Quality May Be Tasked with Focusing a Little Less on Audit Quality

When it comes to Big 4 bustin', UK regulators have proven the most willing to throw poo at a wall to see what sticks. Specifically, the Queendom's Competition Commission has decided that the Big 4's stranglehold on the FTSE is a little too tight for their liking and have been trying to come up with ideas to loosen that grip. Today, in its latest effort to save UK businesses from the lack of auditor choice, the Commission has proposed that the primary audit regulator, the Financial Reporting Council, be given a "secondary duty":

This secondary duty would require the FRC to consider how it might review and report on audits of large companies in a way which promoted competition, the Commission said. The FRC's audit checks could help companies and shareholders better assess the quality of service they are getting and, in combination with other remedies, could make a company more likely to switch auditors, the Commission said. The FRC said its primary focus should remain audit quality and it was meeting with the Commission later this week to find out precisely what it envisages. 
So in the Competition Commission's bizarro universe, the FRC, rather than assess audit quality, would manufacture competition amongst audit firms, and therefore, undermine the FRC's primary function.  
Of course I could have misunderstood this hypothetical scenario to a great degree, but that's sorta looks like what we've got here. Now, I don't really know what "review and report on audits of large companies in a way which promoted competition" might entail, but it's entirely possible that by "mak[ing] a company more likely to switch auditors" an audit of lesser quality could result. Not that firms like Grant Thornton, BDO, Mazars, etc. aren't capable of doing high quality audits, I'm just saying IT'S POSSIBLE that the quality might not be at the same level.
Here in America, the very notion that a company would make a business decision based on the suggestion of a government agency whose intent was to show the company why they should switch their auditor is enough to make every business school graduate's head explode.

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