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FRC has asked audit bosses to tell the accounting regulator of any plans to sell stakes of their business to private equity.
In a letter addressed to audit firms and Recognised Supervisory Bodies (RSBs), FRC chief executive Richard Moriarty said the regulator is not “in principle against a greater participation of external private capital in the UK audit market” but that its role is to “protect the public interest and support growth”.
Moriarty wrote: “We are primarily concerned with outcomes and behaviours by audit firms such as delivering high quality audits, upholding high standards of ethical conduct, and fostering a culture towards always acting with the public interest in mind. More broadly we are interested in the health of the audit market in terms of it being resilient and providing choice.”
In the letter, the chief executive explained that access to external private capital could have potential benefits for the UK audit market, however there are “important risks” that will need to be managed carefully.
Moriarty said: “As with any other major change within an audit firm that has the potential to affect its leadership and culture, a change in ownership structure via external private capital must be able to maintain and enhance over time the important public interest dimension of audit. It must also be able to protect independence as required by law and allow for any threats to that independence as a result of conflicts to be effectively safeguarded.
“Any party interested in a change of ownership by introducing external private capital must be able to continue to provide assurance that it will be able to support the public interest, the independence dimensions of audit and all applicable regulatory expectations. It is important to demonstrate that the legal requirements, including those pertaining to control, are met both in substance and in form.”
The letter comes as private equity groups Permira and EQT circle the UK business of mid-tier accountant Grant Thornton in a deal that could be worth up to £1.5bn.
