Bruce Cartwright – CEO of ICAS

The call follows the publication of a new paper by ICAS’ Private Equity working group, examining the impact on the longstanding rules governing audit firm ownership, amid a steady increase in private equity interest in UK audit firms in recent years.

The paper assesses both risks and opportunities of private equity investment, given the uncertainty over the medium-to-long term impact on the audit profession. It highlights that the rules on ownership of audit firms have not been revisited in-depth for several years.

Bruce Cartwright CA, ICAS CEO, said: “Technology, geopolitics, and changing public expectations are transforming the way the world does business.

“That’s why we believe the time is right to review the rules around who can own audit firms. These rules shouldn’t be disregarded lightly – they must be independently and objectively assessed to ensure that they continue to best serve the public interest. 

“The audit profession is evolving at an unprecedented rate, driven by developments in AI, increasing focus on sustainability and global economic uncertainty. In fact, we expect more change in the next five years than we’ve seen in the past 50. 

“As the landscape shifts, it’s crucial that government, regulators and professional bodies keep the public interest at the heart of any decisions. Audit plays a vital role in how capital is allocated in our economy, and that responsibility must guide any changes to the current framework. 

“Our top priority is maintaining strong audit quality and auditor independence, regardless of where investment in audit firms comes from. That’s essential to ensure continued trust in financial reporting.”

Considering the report’s findings and in light of the significant challenges facing many audit firms, ICAS is calling for urgent action in the following areas:

• Further review and study of the impact of private equity investment and other external capital providers in audit and other professional service firms, in the UK and abroad. A key focus of this would be recognising the risk that financial considerations can unduly influence behaviours. 
• An open and balanced debate of the ownership requirements amongst key stakeholders, considering not only the role of private equity, but other models and approaches, including the scope for a more principles-based approach. The restrictions contained in the extant model are there to mitigate the threat that providers of capital will unduly look to influence behaviour. Therefore, any changes which are proposed will need to be assessed to ensure that they contain appropriate safeguards to mitigate this threat. 
• Closer collaboration between auditor licensing bodies to make sure that the ownership requirements are being applied consistently, identifying and understanding the scope for audit firm structures which are compliant in form but not substance.

The full paper can be accessed from ICAS.com here.