ICAS is warning that the Competition Commission (CC) has failed to explain adequately how proposed changes will address the shortfalls identified in its inquiry into the FTSE 350 audit market.
In its submission to the CC's review of potential remedies, the institute also says it is not clear whether the regulator has paid 'sufficient consideration' to audit quality in its deliberations.
James Barbour, ICAS director of technical policy, said: 'We are not convinced that the CC has properly articulated the connection between the observations, findings and the potential remedies or how the remedies being considered will mitigate the findings.'
Barbour say the CC's findings 'drift into areas beyond the supply of statutory audit services to large companies in the UK; in particular they drift into passing somewhat critical comment on both the UK system of corporate governance and on the role of executive management.'
The institute says that there is evidence of FTSE 350 companies putting audit out to tender or giving serious consideration to doing so, in the light of the new 'comply or explain' provision in the UK Corporate Governance Code.
As a result, Barbour says, 'we do not see the need for the CC to recommend the introduction of more frequent retendering or indeed mandatory rotation of the audit firm at the present time.'>
However, ICAS welcomed several of the CC's other potential remedies, including a prohibition on 'Big-Four-only' clauses in loan documentation and the introduction of better and enhanced reporting to shareholders, which the institute says should be largely the responsibility of the audit committee.
While the institute also gives a positive response to initiatives designed to increase shareholder-auditor engagement, it says it is 'not aware of a strong demand for shareholders to have greater engagement with either the external auditor or indeed the chair of the audit committee'.
Barbour said: 'Therefore, although we welcome developments in this space, the practicalities of greater engagement need to be discussed with investors before any such potential remedies are recommended.'
