Tuesday 13 November 2018 1:02 am

Interview: Rachel Reeves drags audit into the light

Rachel Reeves doesn’t fit the typical mould of a select committee chair.

Where her counterparts leverage their positions of parliamentary power to try to forcibly move their party’s position (see Nicky Morgan), or to launch populist crusades to fix society’s ills (see Damian Collins), Reeves has taken a less attention-seeking approach to the chair, and focused on a distinctly unglamorous subject.

Since taking up her role last July, her most prominent actions have been in the wake of the collapse of outsourcing giant Carillion. The firm’s demise offered an ideal vehicle for Reeves’ ideas: demonstrating, in her eyes, the dangers of crony capitalism and market logic run amok.


Read more: Beleaguered watchdog boss may be forced out within weeks, says senior MP

The repercussions of such corporate failures are close to home for Reeves, chair of the Business, Energy and Industrial Strategy (BEIS) Select Committee. Before becoming a Labour MP in 2010, she worked at HBOS, where she saw first-hand the impact the financial crisis had on the lender. After damning the audit sector and its biggest firms as part of a joint report into Carillion, Reeves has maintained her focus on the sector: while fellow Labour MP Frank Field, the report’s co-leader, has moved on to fresh battles, she has stuck close, organising informal meetings between top firms, and fostering a dialogue ahead of the results of two major reviews into the sector – one, by the Competition and Markets Authority, into the dominant Big Four firms, and another, led by Sir John Kingman, into its regulator, the Financial Reporting Council (FRC).

Reeves, identifying the Big Four – KPMG, Deloitte, EY and PricewaterhouseCoopers – as at the heart of audit’s problems, has positioned herself as their nemesis – launching a BEIS committee inquiry this week to ensure the Kingman and CMA reviews result in actual change. “No answer should be off the table when the problems are so severe,” she told industry members during a speech yesterday morning.

The BEIS committee’s probe lands in a crowded field, and immediately prompted questions as to whether it will simply duplicate existing inquiries into the much scrutinised audit sector.

Read more: Deloitte calls for audit market cap and ban on selling extra services to audit clients

“It’s important to do this in the public eye,” she says. “Certainly, when we had the decision on Carillion, we had that, and I don’t want this to all be decided behind closed doors by experts” – it feels like she puts quotation marks around this word – “because I think you need greater public scrutiny and debate about these changes.”

Part of Reeves’s drive is to keep the government’s eyes on the audit reform ball, and stopping it from ending up in what she calls the “to-do pile” – a tough proposition when Brexit has crippled the UK’s political machinery.


Addressing the fate of Stephen Haddrill – the FRC chief executive, who has announced plans to stand down next year – she offered a couplet of uncharacteristically brutal statements: “I welcome his intention to stand down, I’m not sure whether he’ll be able to survive as long as he currently wants to.”

Read more: The audit sector faces a perfect storm

Haddrill – if still in place once the BEIS committee inquiry gets underway in the new year, post-Kingman – is among those likely to be dragged in front of MPs to discuss the sector’s woes. Given the FRC was called “useless” when he last appeared in parliament, in January, he may be less than keen.

The Big Four have already begun indulging in some public self-flagellation – last week, KPMG pulled out of doing non-audit work for FTSE 350 audit clients. It’s easy to be cynical about the move, which could be seen as the firms trying to get ahead of a competition crackdown. But Reeves says she gives “credit where credit’s due” to the firms for acting to reduce their problems with conflicts of interest.

Read more: Mazars says joint audits and market caps are solution to audit sector woes

She won’t rule out the possibility that another Carillion-style collapse could occur in the coming months.

“I think, and I hope, that the audit profession will be more diligent in the audits it carries out the months and years ahead,” she says, adding that people “might have hoped” the sector would learn a lesson after BHS.

If this is select committee grandstanding, it’s an unusual way to go about it. Reeves’ approach, perhaps befitting the subject of her scrutiny, is refreshingly non-ideological, despite the strong vein of critique she has directed towards the Big Four. But audit’s recent history has been peppered with government tinkering, and as the Brexit storm only grows in magnitude, Reeves might find the vital battle for parliamentary attention becomes harder and harder to win.

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