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The chairman of a British parliamentary inquiry that called for reform of the audit market has slammed the government's formal response to its findings as “not good enough.”

The influential House of Lords Economic Affairs Committee published a report last month that criticized the audit profession and accused firms and regulators of “complacency” and “dereliction of duty” that contributed to the financial crisis.

Among its key findings, the report called for the U.K.'s anti-trust authorities to tackle the Big Four's dominance of the audit market and for legislation compelling bank auditors to talk to financial regulators.

The competition investigation is now underway, but in its formal response to the report the government rejected the need for new laws on auditor–regulator dialogue.

This response was “disappointing”, said Lord MacGregor of Pulham Market, the committee's chair. “Such legislation was a key demand of the Committee's report which concluded such dialogue is ‘essential' and ‘of the first importance.'”

He continued: “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'. 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.”

Lord MacGregor said he was also surprised by the government's rejection of the committee's finding that the move to International Financial Reporting Standards had reduced the scope for auditors to apply the principle of prudence.

PwC, meanwhile, welcomed the government's response to the report. "We agree [with the government] that there is no strong case for further legislation to ensure enhanced dialogue between banking regulators and auditors,” the firm said.

The firm also rejected the idea that IFRS had undermined prudence. “A fundamental part of the auditor's role and a key objective for PwC is to challenge the application of these accounting standards by management,” it said.

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