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Lord MacGregor of Pulham Market, chairman of the House of Lords Economic Affairs Committee, recently said that the Government’s response to the Committee's report on Auditors: Market concentration and their role was not good enough.

Legislation requiring dialogue between banks' auditors and regulators is an important part of the committee's recommendations which were designed to tackle the "complacency" and "dereliction of duty" which saw bank auditors and regulators contribute to the financial crisis.

Lord MacGregor said:

"The House of Lords Economic Affairs Committee's principal recommendation was that the Office of Fair Trading (OFT) should investigate the audit market in the UK, with a view to a possible referral to the Competition Commission. The Committee is pleased the OFT has responded favourably by its recent announcement of discussions with interested parties and that the Government has backed its initiative. The Government's commitment to examine the introduction of living wills for large audit firms is also welcome.

However, the Government’s rejection of legislation to require regular dialogue between banks’ auditors and regulators is disappointing. Such legislation was a key demand of the Committee's report which concluded such dialogue is 'essential' and 'of the first importance'.

"In the run-up to the financial crisis the paucity of meetings between bank auditors and regulators was, the Committee said, 'a dereliction of duty by both auditors and regulators' that contributed to the financial crisis.

Legislation mandating regular meetings – for example, every quarter – is the only way to ensure this lamentable near-breakdown in communication between bank auditors and regulators is never repeated. The Government believes regular dialogue will follow the Financial Services Authority's recently issued Code of Practice on the relationship between bank auditors and supervisors. But with no statutory backing this Code lacks the teeth to ensure this essential dialogue occurs regularly.

We were surprised by the Government's denial that IFRS accounting standards had reduced   prudence in audit. The Committee's report concluded that IFRS has limited auditors' scope to exercise prudent judgment. Auditors' traditional, prudent scepticism must be promoted, whatever the accounting standards."

• Report: Government Response to Report on Auditors: Market concentration and their role