The head of the UK accounting watchdog has told the Big Four audit firms they need to run their own businesses better, before advising other companies, according to reports.
Sir Jon Thompson, chief executive of the Financial Reporting Council (FRC) made his remarks ahead of the regulator’s launch today of its first guide for accountants on what makes a good audit.
“If you were the head of audit at one of the Big Four and you read this document, you’d be thinking ‘I think those are the things I’m [already] trying to do’,” Thompson told the Financial Times, which first reported the news.
“The problem, as far as we’re concerned, is they don’t really do it.”
The new blueprint guide rehashes many previous statements by the FRC on what good audits should entail but this, Thompson told the Financial Times, was necessary because of repeated problems with audit quality by accounting firms.
Nearly 30 per cent of audits by the seven leading firms, including the Big Four firms – Deloitte, EY, KPMG and PwC – were found to require improvement by the FRC, earlier this year. As a result “significant” improvements were needed, “and soon,” the FRC said in a statement.
The audit industry in the UK has come under increasing public pressure for an overhaul following a series of high-profile accounting scandals involving the likes of Carillion and BHS.
“To be frank, one of the things that strikes you when you meet these people is they give people advice about how to run their businesses better but sometimes they don’t run their own business very well,” he said.
“If we’re telling people who are running these multibillion-pound firms to do something they should have known how to do years ago: why can’t they do it [already]?” Thompson said.
The new guide by the FRC, which includes directions for running a “high-quality” audit practice and “good” audits, comes as the regulator, which will be replaced by a new body with more powers, transitions to become an “improvement regulator”.
Previously, Thompson said, the FRC “were essentially a regulator that commented on what wasn’t working, as opposed to saying ‘well this is how you could improve’.”
The Audit, Reporting and Governance Authority, or ARGA, will replace the FRC by 2023 as part of major planned reforms to the audit industry – though it was reported last week that plans, which are currently being finalised, could be scaled back because of a backlash by businesses.