Accountants should stop complaining about extra scrutiny and fines for failed audits and improve the quality of their work, says the UK watchdog for the sector that imposed record financial sanctions on the industry last year. said the person responsible for
Auditors have faced harsh criticism in recent years for failing to raise the alarm over a string of corporate failures, including retailer BHS and outsourcer Carillion.With subsequent crackdowns, the Financial Reporting Council’s stronger approach make one’s career unattractive to recruits.
But Watchdog chief executive Sir John Thompson said he had no sympathy for them over the level of fines imposed. He said in an interview with The Times. “The solution is completely [the audit firms’] hand. Please do a proper audit. Then you won’t have any trouble with us. ”
His comment is that the FRC Record fines of £46.5m For accounting firms and partners for the 12 months through March. Discounted fines for cooperation also reached a record high of £34.6m.
An industry court handed over to KPMG last month Biggest fine in British history — £14.4m — for deliberately misleading regulators during audit examinations of Carillion, an outsourcing company that went bankrupt in 2017, and Regenesis, which went public in the UK in 2015.
The FRC has stepped up its enforcement actions since being branded a “house on the verge of collapse” in a 2018 regulatory review by Sir John Kingman, chairman of insurer Legal & General. .
Most of the sanctions in recent years have been against the big four: Deloitte, EY, KPMG and PwC. These firms have dominated the large corporate audit market and have been criticized for their low quality work.
More recently, however, the watchdog has switched some of its focus to mid-sized accounting firms, hoping to eventually compete with the Big 4 and their smaller rivals in auditing large corporations. increase.
FRC’s latest quality inspection found that over 80% of the three Big Four audits were either good or needed limited improvement. But last month it criticized the efforts of BDO and Mazars. BDO and Mazars are he two of the three main challengers to the Big Four. as “unacceptable”Both companies said at the time they were disappointed with the findings and were investing to improve their audits.
But years of inspection results from both companies, which have significantly expanded their auditing work, have prompted senior auditors to warn that mid-sized players looking to compete to audit large publicly traded companies are more likely than regulators. I have personally come to question whether I can live up to the demands of
Underscoring the point is that after another major challenger, Grant Thornton, slashed the number of large companies audited after a disappointing 2019 result, all the top seven It is the fact that we obtained the best results of the survey. fine.
“FRC’s sticky approach has improved audit quality . said an accounting industry executive. “Otherwise, they would never get new entrants to the market.”
But Thompson, who took over in 2019 after heading HM Revenue & Customs, said auditors’ complaints about the FRC criticizing their scores on tests were “not to call a doctor for saying you were sick.” It’s like blaming,” he said.
But he acknowledged that there is a trade-off between improving the quality of audits and helping build potential competitors for the Big Four. market.
“You will have to make some choices about what is more important. Frankly, our board view is that audit quality is more important than it is right now,” he said. said.
Thompson’s pledge to prioritize quality concerns over competition follows series of fines and investigations Small and medium-sized enterprises It sits below the middle tier of BDO, Grant Thornton, and Mazars.At least seven small audit firms punishment or investigation Over the past 18 months.
Citing an FRC study, Thompson said it was in the public interest to take action against smaller businesses. King & Kinga high-street firm that approved corporate accounts of Sanjeev Gupta’s business empire, which is the focus of fraud investigations.
Part of the problem, he said, was that large firms were “de-risking” by excluding clients they deemed more difficult to audit or whose management resisted scrutiny. Mr Thompson added.These companies are either small audit firms or can’t find judge Jeez.
Some auditors feel that the FRC should have anticipated this problem. “While this situation may have been an unintended consequence, it was not unforeseen,” said the Big Four’s senior auditor.
Regulators fired an accountant last year generous request About high-risk audits. The FRC wants its most competent auditors to check the accounts of riskier companies, but is reluctant to lower its standards to encourage them to do so, he said. said.
Instead of resigning, auditors should do more to make their opinions on financial results clearer and encourage company management to improve governance, he said. “Finding a qualified audit is incredibly rare. Auditors would rather resign than offer critical opinions about the audit.”
Legislative reform to replace the FRC with a stronger audit, reform and governance body “could have been done much faster” and has not yet been passed, but watchdogs now say that Kingman is scathing. It was “very close” to the regulator envisioned in Review 4. years ago. Arga he is not scheduled to be created by April 2024.
Stop complaining about audit fines, do your job better, UK regulator tells businesses
Source link Stop complaining about audit fines, do your job better, UK regulator tells businesses