By Huw Jones
LONDON (Reuters) - An independent review is to look at whether accountants in Britain should check for fraud when auditing company finances so they could potentially spot problems that cause corporate crashes, the business ministry said on Friday.
The collapse of construction firm Carillion and retailer BHS and more recently troubles at Patisserie Valerie prompted politicians to try to shake up accounting and the dominance of the "Big Four" firms - EY, KPMG, Deloitte and PwC - that check the books of most major companies in the country.
The review, headed by Donald Brydon, chair of the London Stock Exchange, will look at how to bridge a gap between expectations that an audit can flag future problems and the reality of what is essentially a backward looking snapshot.
It will look at the extent to which auditors can and should assess the impact of "uncertain future events" and whether underlying information is reliable, the ministry said.
"Is it their job to be policemen hunting for fraud? Probably not. We have to be careful we don't raise expectations beyond what's possible," Brydon told lawmakers earlier this month.
He will consider whether more items in company statements should be audited, such as the risk calculations made by banks that determine how much capital they hold to stay solvent.
The review marks the third part of a push to inject more competition into the auditing business in Britain and improve quality in the external checks of a company's books.
Britain's Competition and Markets Authority has already proposed changes to increase choice in the market. Another review has proposed replacing the regulator for audits, the Financial Reporting Council, with a new, more powerful authority.
The Institute of Chartered Accountants in England and Wales, an industry body, will provide £500,000 of funding for the latest review.
"All supporting organisations recognise and accept that their contribution to the review is unconditional. The review will be conducted on an independent basis," the ministry said in a statement.
A report on the review's finding will go the ministry by the end of 2019, with a final version published and its recommendations put out to public consultation.
(Reporting by Huw Jones. Editing by Jane Merriman)
