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Plans to rein in Big Four accountants may need rework, watchdog says

Plans to rein in Big Four accountants may need rework, watchdog says
Plans to rein in Big Four accountants may need rework, watchdog says   -   Copyright  Thomson Reuters 2021
By Reuters

By Huw Jones

LONDON – Plans to force British firms to share their auditing between “Big Four” and smaller accountants are being widely challenged and may need changing, the industry watchdog said on Wednesday.

After the collapse of retailer BHS and builder Carillion, three government-backed reviews recommended 155 changes to auditing and how companies are run.

The government has put many of the changes out to public consultation until July, and some have triggered a big response, said Jon Thompson, chief executive of the Financial Reporting Council, which regulates auditors and corporate governance.

One proposal is that a Big Four auditor, either EY, KPMG, Deloitte or PwC, must parcel out a significant minority of an audit to “challengers” like Mazars, Grant Thornton or BDO to increase competition.

Thompson said there has been a “really large number of questions” about how this would work, such as who does what and how to ensure audit quality when two auditors are involved.

“There are many who consider managed shared audits might not be capable of being implemented in the UK, and instead they very heavily prefer this markets caps idea,” Thompson told an event held by the ICAEW accounting profession body.

“Resolving this is likely to require further work.”

The government proposed that if shared audits failed to work, the regulator would impose caps on Big Four market share.

There is also some unease about introducing a version of the tough U.S. Sarbanes-Oxley (SOX) rule that requires company directors to personally attest that internal controls are robust enough to ensure reliable financial statements to stop fraud.

Although critics say it will put people off becoming non-executive directors, Thompson said this was unlikely.

“What it might do is reduce some of our most excessive colleagues to focus down a little bit more,” Thompson said.

The reforms are too extensive for a big bang introduction and would likely be phased in over year end 2023 and 2024, with a new watchdog replacing the FRC in April 2023, he added.