The UK’s ‘big six’ accounting companies will face more scrutiny from the financial watchdog after the sector was rocked by criticism following a string of auditing failures.
The Financial Reporting Council (FRC) said it will enhance its monitoring of firms in efforts to avoid instability in the financial sector and ‘systemic deficiencies’ in the sector’s biggest players– BDO, Deloitte, EY, KPMG, PwC and Grant Thornton.
It will focus on ‘critical areas’ including evidence of auditing quality, risk management and controls, financial soundness, values and behaviours as well as leadership and governance, it said in a statement published on Tuesday.
The latest measures come a day after the FRC said it was implementing recommendations for tougher sanctions for auditors, accountants and actuaries
The move comes after mounting criticism of the FRC regarding its oversight of the accounting profession following the collapse of construction firm Carillion, with MPs accusing firms of ‘feasting on the carcass’ of the outsourcer by collecting more than £70million in the decade before its demise.
The watchdog has already started work on some monitoring of risk reporting, IT security and contingency planning and said it will publish individual reports on the audit quality of each firm in June.
The FRC’s Melanie McLaren said: ‘The work of the big six audit firms is core to the integrity and transparency of UK capital markets and so it is vital that the FRC introduces a new approach to monitoring their stability and performance by focusing on aspects of their businesses that are critical to the provision of high-quality audit.’
‘We will discuss with firms how well candidates for key leadership and governance roles such as independent non-executives, heads of audit and ethics partners meet our expectations in terms of experience, skills and attributes.’
‘Where we do not have specific powers in this regard we will look for the firms’ co-operation.’
Business Secretary Greg Clark last month called for the FRC to be subjected to an independent review.
The latest measures come a day after the FRC said it was implementing recommendations for tougher sanctions for auditors, accountants and actuaries.
Business Secretary Greg Clark (pictured) last month called for the FRC to be subjected to an independent review
It includes excluding people from the profession for a minimum of 10 years for dishonesty, greater use by the FRC of non-financial penalties and the imposition of sanctions that ‘reflect the level of co-operation by respondents’.
The most stringent change is an increase in fines to ‘£10million or more for seriously poor audit work by a Big Four firm’.
While McLaren continues to serve in her role as executive director of audit and actuarial regulation, she is one of two board members to have stepped down at the end of March, alongside Paul George.
The FRC said it was part of efforts to diversify its board.
‘The FRC has been actively reviewing the board composition to ensure its membership reflects the wider public interest stakeholders we are responsible to as well as investors, business and those we regulate,’ the watchdog said.
‘Hence recently we appointed Julia Unwin and Jenny Watson, who bring more diverse experience and backgrounds to the board.
‘While Melanie McLaren and Paul George have relinquished their board posts they still play key roles in the executive management of the FRC running the operating divisions under their leadership.’