Britain’s top six accounting firms will come under increased scrutiny from the audit watchdog, including checks on their top hires, after corporate scandals raised questions about the quality of book-keeping.
The Financial Reporting Council, whose effectiveness as a supervisor has also been questioned by some lawmakers, said it was introducing a "new approach" to supervising the "Big Four" - PwC, KPMG, Deloitte and EY - and the next two down, BDO and Grant Thornton.
The FRC samples their audits each year and from June will also report on checks to see how firms avoid “systematic deficiencies” within their networks of accountants, disruption in mandatory audits, and instability in the financial sector. It will also look at hirings.
“We will discuss with firms how well candidates for key leadership and governance roles such as independent non-executives, heads of audit and ethics partners meet our expectations in terms of experience, skills and attributes,” said Melanie McLaren, executive director of audit and actuarial regulation at the FRC. Where the regulator does not have specific powers to take action, it will look for the firm’s cooperation, she added.
Lawmakers have questioned the effectiveness of the FRC in holding the Big Four to account. The FRC admitted last November that it was too slow to investigate why KPMG gave the green light to HBOS accounts just seven months before the lender had to be rescued by a competitor during the global financial crisis. Britain’s business ministry is due soon to announce a review of the watchdog’s powers.
Improving audit quality is a priority for the FRC as Britain prepares to leave the European Union next year, increasing the need for London to remain a global centre for company listings as it faces more competition from continental financial hubs. The FRC on Monday warned the Big Four it could fine them 10 million pounds or more for serious breaches, double its record fine to date. The sector is waiting to see what action, if any the watchdog will take against the auditors of department store BHS, Co-operative bank, and technology firm Autonomy. – Reuters
