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FRC sets out policy plans to increase competition and resilience in failing audit market

December 1, 2022

The FRC has today published a policy paper that outlines the regulator’s approach to competition in the audit market.

The paper sets out the need for a market that consistently delivers high quality audit and is resilient. It makes clear the need for the package of measures proposed by the Government in its response to the consultation on Restoring Trust in Audit and Corporate Governance.

It also looks at recent developments in the market that suggest that increased competition and choice has more recently tailed off, and that more entities tendering for an auditor are struggling to identify firms willing to bid. The top four audit firms still dominate the market, resulting in limited choices for businesses and ongoing concerns about resilience.

The paper sets out how the FRC is seeking to progress the Government's seven competition policy proposals, and how it proposes to deliver on the operational objective for ARGA to promote effective competition in the market for statutory audit.

The FRC has already started to address issues in the market through measures such as operational separation and its recently published draft standard for audit committees. However, legislation is needed to make a significant difference by providing ARGA the powers to implement all seven proposals.

Mark Babington, Executive Director of Regulatory Standards at the FRC, said:

“The FRC has set out a high-level policy overview of what we think about competition in the market and the powers we think legislation should give us. It’s intended to encourage discussions with our stakeholders so that they can provide us with their views on creating an audit market that works for everyone.”

“One of the FRC’s strategic objectives, set out in its three-year plan, is to create a more resilient audit market, and these proposals are a road map to achieving that target.”

[Financial Reporting Council]