A new proposal for overhauling the auditing process and weakening the market grip of the “big four” was made by the UK Government last week.
The new proposal would result in making company directors responsible for spotting fraud.
Directors would have to repay bonuses if their company went bust or serious failings came to light, and dividends and bonuses would have to be stopped if firms didn’t have enough cash .
Business minister Kwasi Kwarteng said in a statement. “It’s clear from large-scale collapses like Thomas Cook, Carillion and BHS that Britain’s audit regime needs to be modernised with a package of sensible, proportionate reforms.”
Some of the proposals are already being introduced in voluntary form, such as operational separation of audit and more lucrative consultancy work at PwC, Deloitte, KPMG and EY – the “Big Four” firms that dominate auditing of blue-chip UK companies.
The government proposed that smaller audit firms undertake a more meaningful portion of a big company audit, with new reporting obligations introduced on both auditors and directors around detecting and preventing fraud.
Company boards would be required to set out what controls they have in place in a British version of the stringent U.S. Sarbanes-Oxley anti-fraud safeguards introduced after energy giant Enron collapsed. The Institute of Directors said it was appropriate to consider how accountability of directors could be improved, but the collective responsibility of a board should remain the central feature of UK corporate governance. Accounting experts say such increased responsibilities on directors would mean individuals taking on fewer directorships.
Source: Reuters
Published: 22nd March 2021