By Huw Jones
LONDON (Reuters) – Doubling up on auditing the biggest listed companies, the proposed central plank for reforming Britain’s audit market, may not be the right answer, the UK government’s preferred candidate to chair a new accounting watchdog said on Wednesday.
Britain wants to shake up auditing after the collapse of retailer BHS and builder Carillion.
Britain’s Competition and Markets Authority (CMA) has proposed that nearly all of the top 350 listed companies hire two auditors to jointly check accounts.
“I am not convinced at this stage if joint audit is the answer,” Simon Dingemans told a pre-appointment hearing in parliament’s business, energy and industrial strategy committee.
Shared audits, where an audit is divided up rather than done jointly, had much to be commended and there were other solutions as well, Dingemans said.
He is the government’s preferred candidate to chair the Financial Reporting Council (FRC), the regulator for auditors.
Dingemans and a yet-to-be named chief executive would transform the FRC into a new, more powerful regulator to oversee an audit market shake-up.
Efforts in recent years to reform auditing, a market dominated globally by EY, KPMG, Deloitte and PwC, have made little headway in creating more choice or improving standards.
“There is a very different appetite for change… an opportunity that hasn’t existed before to make very radical change,” said Dingemans, a former Goldman Sachs banker and past chief financial officer for pharmaceutical company GSK.
Dingemans said he wanted to build a very different regulator with teeth that it was prepared to use, after the FRC was criticised by lawmakers for being too cosy with big accountants.
“There is a great chance for a clean break,” he said.
Companies have said that hiring two auditors would bump up costs and not necessarily improve standards.
Legislation will be needed to give the audit watchdog more powers and to make changes like joint audit mandatory.
The timing of any change is unclear however, given that parliament is clogged with business related to Britain’s departure from the European Union.
The business ministry said it was committed to bringing forward reforms, but has stopped short of saying it would implement proposals as set out by the CMA.
“The CMA’s findings provide a strong evidence base for those reforms, and we will publicly consult on any proposed changes,” the ministry said.
Dingemans said a lot could be done that does not need legislation.
Details from the FRC’s annual review of audits could be made more public and detailed, he said. Current reviews are published in an anonymised and aggregated form.
(Reporting by Huw Jones; Editing by Jan Harvey)