Wednesday 21 October 2020 4:02 pm

MPs demand update on audit reform progress from business secretary

An influential committee of MPs has written to business secretary Alok Sharma to demand an update on the government’s progress implementing audit reforms following a series of high-profile accounting scandals. 

In a letter dated yesterday, Business Energy and Industrial Strategy (BEIS) committee chair Darren Jones asked Sharma to outline which reforms recommended by two recent reviews into the sector have been implemented, and which the government plans to implement.

Jones also asked Sharma to set out a timetable for the introduction of legislation required to implement some of the recommended changes to the audit sector, including the introduction of a new regulator to replace the Financial Reporting Council (FRC), which has been described as “toothless” by MPs.

Audit firms have come under increasing pressure in recent years following accounting scandals including the collapse of Patisserie Valerie, BHS and Carillion.

Three government-backed reviews have called for shake-ups to the sector, but no legislation mandating change has yet been introduced. The BEIS committee accused the government of dragging its feet on audit reform earlier this year.

In July, the FRC ordered the Big Four audit firms – Deloitte, KPMG, PwC and EY — to separate their audit units from the rest of their business by 2024, following criticism for firms mixing audit and more lucrative non-audit work for the same clients. 

However audit experts criticised the move to ring fence audit divisions as a “cosmetic exercise”.

“It’s vitally important that investors and other stakeholders have confidence in audits. Confidence has been shaken in recent years by a series of audit scandals,” said Jones.

“The government and the regulator now need to step up and help improve corporate governance, boost audit quality and tackle competition in the audit market by pressing ahead with the practical measures recommended by a series of reviews.”

A spokesperson for the business department said: “Strengthening our corporate governance and audit regime will help to ensure that the UK remains a world leader in corporate transparency and advance its status as a place of the highest standards in audit.

“The Government will respond with comprehensive proposals for audit reform and will then bring forward legislation as soon as parliamentary time allows,” they added.