1. UK / Netherlands Regulatory update
David Isherwood
Bdo
Jan 2019

2. 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

3. 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

4. Regulatory / market landscape
Kingman review (96 pgs) 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

5. 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."

6. 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

7. 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

8. NL Regulatory update

9. 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

10. 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

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