Choice in the UK Audit Market Discussion Paper 2

FINANCIAL REPORTING COUNCILDISCUSSION PAPER: CHOICE IN THE UK AUDIT MARKETMAY 2006 Introduction 1. This Discussion Paper follows the publication of a study jointly commissioned by the Financial Reporting Council (FRC) and the Department of Trade and Industry (DTI), “Competition and choice in the UK audit market” (“the study”), and an open meeting held on 26 April at which the study was discussed. The study, conducted by economic consultancy Oxera, considered the factors that contribute to the competitive environment for audit services to large listed companies in the UK. The objective of this Discussion Paper is to facilitate a public debate on how to identify the appropriate response to the findings of the study. 2. In this Discussion Paper we describe the importance of audit to the UK economy. We summarise key findings from the study, including the components of large company audit services and how these influence the competitive environment in the audit market. We discuss risks to the public interest that may arise from the existing competitive environment and types of opportunities for mitigating these risks in the UK market and internationally. Finally we describe our consultation process. Importance of audit to the UK economy 3. The FRC’s aim is to promote confidence in corporate reporting and governance. Confidence in the reliability of financial information is essential to the healthy functioning of markets to the benefit of ...