UK audit reform puts IAASA in tricky spot

The UK Competition Commission’s plans to mildly shake up the audit market in that jurisdiction have been met with silence on this side of the water, but they put the Irish regulators in a rather tricky position.

The Competition Commission wants British companies to put their audit work out to tender every five years. The context for the reforms is the failure of the auditors of the large British banks - like their Irish counterparts - to spot or report on the trouble brewing on the banks' balance sheets in the run up to the 2008 financial crisis.

The UK Financial Reporting Council - which regulates the sector – favours a much weaker response, namely asking companies to consider once every decade putting their audit work out to tender.

It has expressed several reservations over the competition body’s proposals and their related cost.

It has called for more time for the new voluntary tendering approach to prove itself.

However, the Competition Commission seems keen to press ahead and the plans will be put out to public consultation before being published in final form in October for implementation, though no major changes are expected.

This will create something of a headache for the Irish Auditing and Accounting Supervisory Authority. It regulates the profession here but leaves much of the heavy lifting to the FCA which sets auditing and ethical standards for auditors in the UK and Ireland. The IAASA has "permanent observer status" at the Audit and Assurance Council, which reports to the FRC.

It will presumably now have to decide whether to follow the lead of the UK Competition Commission and implement the slightly tougher regime or instead stick with the FCA recommendations which are much more to the liking of the big four firms and most probably their clients.

Public opinion will no doubt have a bearing on what happens and it's unlikely that the Richard Bruton, the Minister for Jobs, Enterprise and Innovation – to whom the IAASA reports – will want to be seen to be softer on the big firms than his UK counterpart given the much, much, more catastrophic nature of the banking crisis here.