Managed shared audit in the FTSE350

1) Continued Government backing for Managed Shared Audit for FTSE350 companies

• the Government has confirmed its support for Managed Shared Audit in the FTSE350 except where a challenger firm is appointed as sole auditor or an exemption is agreed with the regulator
• the market-opening measures will be implemented over time and in a phased manner as audits fall to be tendered under the existing tender cycle.
• a ‘meaningful proportion’ of the FTSE350 shared audit should be undertaken by challenger firms and ARGA will be given the power to set this percentage
• it is considered that the primary basis for the allocation of audit work under the managed shared audit regime should be by reference to legal subsidiaries though this does not rule out other approaches in appropriate circumstance
• it is considered that FTSE 350 companies should have the flexibility to include international subsidiaries when allocating a ‘meaningful proportion of audit work if they choose to do so

 2) Approach to exemptions framework set out

• It is recognised that circumstances may arise where challenger firms may not be able to act as sole group auditor or may not wish to bid for a meaningful proportion of an audit, and where a lack of experience or capacity may significantly compromise audit quality. In addition, it is considered that the minimum ‘meaningful proportion’ threshold may represent a very large quantity of audit work in absolute terms for the very largest companies in the FTSE 350. As a result, the Government and the regulator will work together to develop an exemptions framework that balances these practical considerations with the Government’s overall objective to increase competition. This framework will allow the regulator to grant exemptions under limited circumstances and to impose conditions on those companies that are granted exemptions, where appropriate.

 3) Option for market share cap regime if MSA does not lead to successful change

• powers will be made available to introduce a market share cap in future. The Government has indicated that a market share cap regime should not be pursued at this time, but will be retained as an option to introduce if it becomes clear that choice in the FTSE 350 has not significantly improved. This would include a proportion of audits being reserved for challenger firms based on challenger firm capacity and capabilities