LSE chair Brydon to lead government audit review

The outgoing chairman of the London Stock Exchange (Other OTC: LDNXF - news) is to head a new government-commissioned probe into the future of the audit market amid a comprehensive overhaul of the profession being unveiled this week.

Sky News has learnt that Donald Brydon, who will step down as chairman of London Stock Exchange Group (LSEG) next year, will be named on Tuesday as the chair of a piece of work codenamed "Project Flora".

The initiative's scope will include examining the future of audit as a practice and the quality of audit work in the UK.

It will be an independent review, and separate to two inquiries which will announce their findings on Tuesday led by the Competition and Markets Authority (CMA) and Sir John Kingman, the former Treasury mandarin.

Sources said that Mr Brydon's appointment as "Project Flora's" chair would underline the extent to which the Business Secretary, Greg Clark, wanted a root-and-branch review of the audit market following scandals involving corporate failures at companies such as BHS and Carillion (Frankfurt: 924047 - news) .

Sky News revealed last week that the UK's big four auditors will face an unprecedented move to limit their market share and allow smaller rivals to gatecrash their self-confessed oligopoly as the government seeks to shake up the sector.

The CMA is expected to recommend a series of remedies including a cap on the number of large listed companies that the big four can audit, the adoption of a joint audit model for large listed companies and new steps to improve the accountability of companies' boardroom audit committees - including giving regulators jurisdiction over them.

The watchdog is expected to leave open the fallback option of a wholesale break-up, which has been lobbied fiercely against by the sector's biggest players: Deloitte, EY, KPMG and PricewaterhouseCoopers (PwC).

Industry sources said the CMA appeared to have been convinced by the industry's argument that a full structural split between audit and non-audit businesses would be impractical on a UK-only basis.

Instead, the CMA is likely to recommend a less radical separation that would leave the firms intact but could nevertheless lead to the creation‎ of separate boards of directors for the audit practices of the major accountancy firms.

Although the inquiry will stop short of the most draconian reforms, they would, if adopted, have significant implications for the audit profession's leading quartet.

The adoption of joint or shared audits, a system used widely in France, would mean a firm from outside the big four being required to work alongside one of the quartet on the accounts of large companies.

It was unclear at what level any market share cap on the big four firms might be set, and whether it would be framed as an individual or collective limit on the number of FTSE-100 companies they can audit.

The conclusions of the CMA market study will appear alongside those of an inquiry by Sir John into the role and remit of the under-fire Financial Reporting Council (FRC).

Sky News reported last week that Sir John's work had concluded that the audit regulator should be reconfigured as a statutory body holding stronger powers, including the ability to bring companies, as well as auditors and qualified accountants, under its supervisory scrutiny.

A person close to Sir John said he had concluded that the FRC was "not fit for purpose" and required a radical overhaul of its role, remit and leadership.

The findings will be published as Stephen Haddrill, the FRC's chief executive, prepares to step down next year.

A CMA spokesperson said last week: "Our investigation is ongoing. Any reporting ahead of the publication of our provisional findings is speculation."

The Department for Business, Energy and Industrial Strategy declined to comment on Mr Brydon's appointment.