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<p>The Government does intend to implement provisions relating to increased tendering
as part of the implementation of the EU Audit Regulation and Directive. This is in
line with the recommendations of the Competition and Markets Authority (CMA).</p><p>The
Government’s implementation of the EU Audit Directive and Regulation will include
measures to require regular tendering of auditor appointments. Under implementing
regulations currently laid before Parliament, all companies that are banks, building
societies or insurers, or which have securities admitted to a regulated market, will
be required regularly to subject their audit engagement to tendering. The maximum
duration of an audit engagement will be limited to 20 years (currently there is no
maximum duration). This will be introduced on a phased basis with some longstanding
engagements given a further 4 or 7 financial years after the regulations come into
force before they must be brought to an end and tendered to new auditors.</p><p>The
provision on joint audit in the EU Regulation would act as an exemption from having
to retender with the frequency envisaged by the Competition and Markets Authority
(CMA). The Government consulted on the implementation of the Audit Directive including
this option, and concluded the option should not be taken up.</p><p>Joint audit is
not a practice followed in the UK, though it is expressly permitted by the Companies
Act and legislation on some other entities. The Department for Business, Innovation
and Skills has consulted on whether to take up this derogation. In response to our
discussion document in December 2014 on auditor regulation, only 4 of 25 respondents
supported its implementation.</p><p>It is unclear that increased joint audit would
encourage competition. The option in the EU Regulation could result in prolonged audit
engagements (up to 24 years) and fewer changes in auditor. This would be contrary
to the objective of the CMA, which is to increase retendering of audits.</p><p>The
CMA considered the impact of joint audits on competition and concluded that promoting
joint audits would have little effect on barriers to entry, expansion and selection.
The CMA’s conclusions were based on views provided by a range of stakeholders. The
CMA was not able to quantify the potential cost of imposing joint audits, but did
state that they believed that across the market the costs would be potentially significant.
They state that a lot of weight was placed on the views of investors, who were almost
universally opposed to joint audits on the grounds of additional costs and risks to
audit quality.</p>
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