A Tory MP has warned of potential conflicts of interest inside the UK’s accounting watchdog, following reports that Britain’s Financial Reporting Council (FRC) brought in consultants from EY to advise on one of its plans.
Tory MP Kevin Hollinrake hit out at the FRC for hiring advisors from the Big Four auditor, as the watchdog faces mounting public and political pressure to crack down on misconduct within the UK’s major accounting firms.
The comments come after the FRC brought in EY consultants to advise it on a new classification scheme for insurance contracts at a cost of £50,000, according to the Sunday Telegraph.
“You’d expect the FRC to have this expertise internally rather than having to hire a firm that it regulates to do it. It’s a clear conflict of interest,” Hollinrake told the Sunday Telegraph. “I don’t think it’s appropriate.”
The news comes as the FRC has faced criticism over its links to the very firms it is tasked with overseeing, amid claims the watchdog has been subject to “regulatory capture”.
The allegations come as the upper echelons of the watchdog remain full to the brim with former Big Four executives. Top ranking FRC members have also been accused of holding “cosy” relationships with Big Four firms in enjoying scores of Big Four backed hospitality events.
The comments also come as the UK government is currently pushing forwards with long-awaited plans to replace the FRC with a new, more powerful body, called the Audit, Reporting, and Governance Authority (ARGA) as part of a shakeup of the UK’s audit sector.
Last month, reports emerged that EY is planning to split its business in two, with a view to separating its audit segment from its consultancy operations, in a bid to escape the conflicts-of-interest allegations that have plagued the Big Four for years.
EY declined to comment. The FRC could not be immediately reached for comment.