UK / Netherlands Regulatory update David Isherwood Bdo Jan 2019

UK Regulatory / market landscape Market review published 18 December Written responses by 21 Jan CMA review Published 18 Dec Report addressed to Secretary of State Kingman Review [of the FRC] Written evidence due 11 Jan Oral sessions for the firms 30 Jan BEIS select Committee Announced by SoS 18 Dec Scope, relevance and value of auditing Brydon review behalf of the Shadow Chancellor, John McDonnell MP, Labour Party stance Rachel Reeve (BEIS select committee is Labour MP) Prem Sikka

Regulatory / market landscape CMA report (146 pgs) - proposed preferred remedies “…while most people would never read an auditor’s opinion on a company’s accounts, “tens of millions of people depend on robust and high-quality audits. If a company’s books aren’t properly examined, people’s jobs, pensions or savings can be at risk.” - CMA chairman Andrew Tyrie Audit Appointment Regulatory scrutiny of auditor appointment Clear priority on quality and challenge No focus on ‘cheapest’ or best ‘cultural fit’ Joint Audit Proposal to cover all FTSE350 Must be one non-B4 Alternative approach if not effective would be market caps Ringfencing Split into clearly defined operating units Separate management Separate remuneration Peer reviews Commissioned by the regulator

Regulatory / market landscape Kingman review (96 pgs) -- 83 recommendations “…[regulator needs] new leadership, new mission, new powers and new funding”, calling for the creation of a new body, which he dubbed the Audit, Reporting and Governance Authority (Arga)…” – Sir John Kingman Has a clear and precise sense of purpose and mission Purpose Firmly focused on the interests of consumers of financial information, not producers Focus Is respected by those who depend on its work and where necessary, feared by those whom it regulates Respect Has the right power, resources and talent that it needs to do its job Power Has authority over auditors, corporate governance and all company directors Authority Will replace the ICAEW role for major audits Registrations

Regulatory / market landscape UK Parliament - BEIS Select Committee – Rachel Reeves “…Current audit market is ‘broken’ and that failings in audits, including at Carillion, have helped to undermine public trust in business… The current inquiries by the CMA and Sir John Kingman are welcome and necessary. But, too often in the past corporate and regulatory failures have been followed by reviews which have been left to gather dust rather than result in concrete action. Our Committee’s inquiry on the future of audit seeks to ensure these reviews are acted upon swiftly and effectively and that they genuinely deliver the improvements to audit quality and corporate governance which businesses, investors, pension-holders and the public expect."

Regulatory / market landscape Brydon review The independent review will look at the quality of standards delivered by UK auditors and what more can be done to make them “more effective and reputable” as well as how better to meet public, shareholder and investor expectations – Greg Clark Donald Bydon – Chair of LSE Look at quality of audit How to better meet public, shareholder and investor needs Assess the current audit model TOR TBC early 2019

Regulatory / market landscape Prem Sikka review (172 pgs) Calls for a breakup of the Big Four. Recommending the audit sections of professional services firms be split off from their other divisions, as well as backing market caps, joint audits and the creation of a state-backed body to carry out audits of public interest entities such as banks, building societies, credit unions and major investment firms. It said: “the auditing industry is in disarray, dysfunctional and stumbles from one crisis to another

NL Regulatory update

Audit Profession in The Netherlands History of self-regulation by Dutch Professional body (Royal NBA) and Oversight by Dutch Authority for the Financial Markets (AFM), even after ‘crisis in audit’, i.e.: September 2014: 53 measures Public Interest Steering Committee (2017): Audit Change Agenda Reviewed by Monitoring Commission Audit (MCA): Insufficient progress Wicked problems AFM: (still) not satisfied with audit quality

Final call for self regulation November 21st 2018: “Day of the Auditor” (organized by Royal NBA) Minister of Finance Mr. Hoekstra announces the institution of an independent ‘Committee Future of the Audit Profession’ which will investigate how to improve quality of the audit in a sustainable way as well as possible structural changes in how the audit sector is organized. The Committee will at least investigate: Possibilities of ‘audit only’ firms Intermediair model Audit of large non-public entities by a Governmental audit firm The committee must keep in mind the international context of the profession. The committee needs to report within a year. (so end of 2019, early 2020).   Expectation is that the Committee will look closely to what happens in the UK and will come with extensive proposals to change the (organization of the) Audit Profession

Vulnerabilities in the structure of the audit sector (report of AFM, November 21st 2018)