A possible avalanche of corporate failures could once again shine the spotlight on auditors, according to Menzies partner James Hadfield.
The partner said he could foresee more failures coming, and believed it likely auditors would become a talking point in the process.
The high street is having a particularly tough time at the moment, with existing worries over the growth of online shopping compounded by lockdowns and restrictions as a result of the coronavirus pandemic. Earlier this week retail giant Arcadia collapsed into administration, risking 13,000 jobs.
“It wouldn’t surprise me if there were more failures coming through,” Hadfield said, speaking on a webinar yesterday. “It’s been such a challenging time for businesses… certain sectors have been hit really hard, like retail, hospitality and leisure, and you can imagine that some of those companies that have limped on may not make it over the finish line in good enough shape to continue.
“Auditors don’t have a crystal ball, and there’s only so much that we could be expected to predict,” he continued, “presumably a lot of these businesses will have had their last audit signed off during the pandemic, and you would hope that auditors will have taken the right level of risk aversion in their opinion and made the necessary disclosures, but there will be some examples where there are unforeseen circumstances, and I suspect the spotlight will once again fall on the auditor.”
The audit sector has found itself at the centre of a number of previous high profile collapses. KPMG has been criticised for its audit of construction giant Carillion, EY is currently being investigated by the German regulators for its audit of Wirecard, and Grant Thornton hit the headlines when Patisserie Valerie collapsed into administration in 2019.
Despite the challenges, EY audit partner Paul Copland did not think the pandemic had accelerated the need for audit reform.
“Ultimately, I think this period of time has probably emphasised the continued importance of the audit and that challenge when it comes to business reporting their position through Covid, because it has definitely required companies to be far more inwards looking and transparent when it comes to their own reporting, when it comes to impact of trading on the pandemic,” he added.