The long-promised reform of the UK audit sector could start this year with voluntary changes by the Big Four accounting firms, the audit watchdog said today.
The collapse of outsourcer Carillion in 2018 prompted three reviews of the sector and two years on there have been calls from MPs and industry figures to speed up the process of reform.
“I don’t agree with some views that there may be some drift,” Jon Thompson, chief executive of the Financial Reporting Council (FRC) told Reuters.
“I remain firmly of the view that the government will do it. I am really confident that audit reform is coming.”
Thompson said a plan for the Big Four – KPMG, EY, Deloitte and PwC – to ringfence their audit operations from their advisory arms is set to be finalised next week for implementation this year.
“It could go ahead this year. We get the fairly clear view from the Big Four that they would proceed to be able to implement most of the principles in a reasonably timely manner,” Thompson said.
The FRC has pushed for the introduction of shared audits, where one of the Big Four would take the lead on an audit with assistance from a challenger firm such as Mazars or RSM.
The Competition and Markets Authority had called for joint audits, which would give the challenger more say in an audit process, requiring both firms to jointly sign off on the audit.
In a recent blog, CMA senior director Will Hayter said the CMA could support shared audits if they gave the challenger firm a strong enough say in the process.
“There may be potential in this idea if the enhancements put the two auditors on a near-equal footing. For example, the challenger firm should be responsible for auditing large, complex parts of the business, and the audit partner should report directly to the company,” he said.
However, he warned that if reform did not go far enough, the CMA may intervene in the sector again.
“There is a range of options to choose from, but we should all judge the solution by one overriding test: will it create a resilient market where there are more than four firms capable of auditing the largest companies, a market that rewards quality and punishes poor performance through loss of business?
“If the answer is no, the CMA may eventually be forced to revisit the question,” he said