Monday 25 November 2019 1:18 pm

General Election 2019: Conservative Party to ditch central tenet of Big Four audit reform plans

The Conservatives will throw out a proposal to impose mandatory joint auditors on large companies if they win the General Election.

Officials at the Department for Business, Energy and Industrial Strategy (Beis) have in recent weeks indicated that the system is unlikely to be introduced as part of wider reform of the auditing sector, Sky News reported today.

Read more: Audit watchdog could push for clawback of audit partners bonuses after poor quality work

The proposal was made in April by the Competition and Markets Authority (CMA) in an attempt to address what the regulator described as “serious competition problems in the UK audit industry”.

“Joint audits are dead in the water as far as the UK is concerned,” one senior figure told Sky News.

Instead of the joint audit system, which would involve a second firm outside of the Big Four acquire equal responsibility for looking over large companies’ accounts, Beis is suggesting a shared audit system where the smaller firm would only have responsibility for a division or subsidiary of a company.

However, it was emphasised that the final decision on the reforms would be taken by the next government.

If Labour wins next month’s election, it has promised sweeping changes to the sector, saying that it will break up the Big Four by separating their legal and consulting arms.

Labour’s would-be chancellor John McDonnell also detailed plans to introduce a statutory auditor that would examine the books of banks, insurers and other financial institutions.

He also called for audit tenders to be made publicly available and auditor files accessible to “stakeholder scrutiny”.

Beis has been consulting on the reform process for several months. A spokesperson said:

“As part of our ongoing consultation on audit market reform, we are discussing a range of policies with the industry.

“It will be for ministers to determine the policy once a new government is formed.”

The recent collapses of large businesses such as Carillion and BHS have led to increased scrutiny on the Big Four, who have been forced to pay millions in fines as a result.

Read more: Conservative manifesto: How will Boris Johnson tax and spend?

Last month the author of a report into the future of the audit regulator warned today that lack of government action risks letting the watchdog “drift on, half-reformed”.

Former mandarin Sir John Kingman undertook the report into the Financial Reporting Council (FRC) following the failure of outsourcer Carillion in 2018.