The UK accounting watchdog, the Financial Reporting Council (FRC), is to consider whether auditors should be banned completely from providing consulting work for companies or organisations they audit.
The UK audit market and its Big Four players – EY, Deloitte, KPMG and PwC – have received large amount of political scrutiny over the last year due to a range of high profile company failures and large fines given to the audit firms for their audit work. It was the Carillion collapse in particular that has brought the actions of the Big Four under public and government scrutiny.
The FRC has said it will work closely with UK’s Competition and Market Authority (CMA) in this area.
Why ban consulting services?
The watchdog acknowledged that recent company failures were part of the reason for the investigation.
FRC CEO Stephen Haddrill said: “This comprehensive reform programme addresses the fundamental issues underlying falling trust in business and the effectiveness of audit, whilst also looking to ensure that the requirements on what companies say about themselves are fit for the future needs of stakeholders. If stakeholders are to have confidence in audit, they also need to have confidence in audit rules and regulation.
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“The FRC has reviewed how we can improve audit quality and our supervision of audit firms. In addition to the programme set out today we look forward to proposals from Sir John Kingman and the CMA.”
Haddrill makes reference to John Kingman who is currently leading an investigation to determine whether the FRC is fit for purpose. The investigation was launched upon request of UK members of parliament following the inquest into the collapse of Carillion.
The CMA is also in the process of determining whether a formal investigation into the lack of competition in the UK’s listed audit market is necessary.
Currently the Big Four firm audit almost all of the UK FTSE350 despite new mandatory rotation rules.