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15 Oct 2018

CMA launches Market Study into the audit sector

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On 9 October 2018, the Competition and Markets Authority ("CMA") announced that it had launched a market study into the statutory audit market in order to see whether the market is working as well as it should.

The study comes at a time of heightened scrutiny of the sector, and seeks to build on previous investigations by the CMA's predecessors, the Office of Fair Trading and the Competition Commission. It is being run in parallel to an independent review of the audit watchdog, the Financial Reporting Council ("FRC"), which is expected to report findings by the end of the year, and there is expected to be close cooperation between those working on the two reviews.

The CMA's study will focus on three main areas: (i) choice and switching; (ii) long-term resilience of the sector; and (iii) the incentives existing between audit companies, audit firms and investors. The CMA is considering a number of potential remedies, including ideas to improve incentives, further separation of audit and non-audit services offered by audit firms, and reducing barriers to entry and expansion by non-Big Four firms. It appears to shy away from considering a break-up of the Big Four in the UK to address concerns however.

Although the CMA has until October 2019 to publish the findings of its study, it is aiming to publish a provisional report by December 2018 (to coincide with the FRC review), and to complete its work as soon as possible thereafter.

Interested parties have until 30 October 2018 to provide comments on the market study, including responding to specific questions for consideration issued by the CMA. Given the issues at stake, it is likely that many in the industry will want to do so.

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Marta Isabel Garcia

Marta Isabel Garcia
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Rhiannon Davies
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