FRC Publishes Further Paper on Choice in the Audit Market

The Financial Reporting Council, the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance, has published a discussion paper on the possible effects of changes to audit firm ownership rules, plus a consultation on the use of audit firms from more than one network. The discussion paper and consultation form part of the FRC’s progress report on the recommendations of the Market Participants’ Group (MPG) on actions to enhance the efficiency of the market for audit services to large companies in the UK. The discussion paper considers a number of issues in relation to audit ownership, including: 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; and possible decline in audit quality arising from conflicts of interest associated with a firm’s ownership. Responses to both the discussion paper and the consultation are sought by 1 August 2008.