The UK’s accountancy watchdog, the Financial Reporting Council (FRC), has pledged to vet senior appointments at the six largest auditors in what is considered a reactionary move.

In the wake of construction and outsourcing giant Carillion’s spectacular failure, the efficacy of the UK’s largest audit firms has been called into question (again) and is attracting intense scrutiny due to public funding.

The FRC has pledged to vet top appointments at PwC, KPMG, EY, Deloitte, Grant Thornton, and BDO, but this is at best ineffective and at worst, unnecessary meddling.

UK-based Carillion went into liquidation in January and KPMG’s role as auditor has been questioned and criticised as it had signed off the company’s accounts just 10 months earlier.

At the same time, Carillion directors signed off a “viability” statement saying there was no reason to think the company would have financial difficulties in the next three years.

In hindsight, this looks bad, but to blame the auditors smacks of scapegoating.

The UK government must take some blame for continuing to award work to Carillion despite the fact that City traders were betting against the company as long ago as 2013.

The FRC is an independent, non-governmental regulator but the government will be happy to hear that auditors are being doubted, diverting attention away from its own questionable decision making.

The main function of an auditor is to assess whether a company’s financial statements are presented fairly, in all material respects and in accordance with relevant financial reporting frameworks.

The audit process provides an enhanced degree of confidence in the financial statements.

Sure, the auditor has to ask questions when something doesn’t look right and auditors should certainly question management and make sure they understand internal processes.

Documentation regarding transactions should be tested but it is not the role of auditors to act as management consultants and run businesses.

3 Things That Will Change the World Today

An auditor is only able to work with the information it is provided and in this case, it seems that Carillion’s own management were unaware of just how dire its situation was.

KPMG’s audit department is not there to fix such a broken business and although it is not blameless, the reaction has been disproportionate.

The FRC’s announcement feels like an attempt to boost its relevance by jumping on a hot topic that will have public and government support. Auditors should be regulated but it is not the role of such a regulator to tell firms who they can and can’t employ.

A maximum term for audits would be a better solution for conflicts of interest or to stop relationships between auditors and companies becoming too ‘comfortable’.

Free download worth over $5000
Download our 2018 Technology, Media and Telecoms Predictions Report

Worth up to $5,850

In this report, we look at the 30 big tech themes for 2019, identifying winners and losers for each theme. This report will impact all industries helping:

  • CEOs/Senior Staff: in all industries understand the disruptive threats to their competitive landscape
  • Investors: Helps fund managers focus their time on the most interesting investment opportunities in global TM