Auditors ‘should be standalone profession’
Carillion was a high profile failure that auditors failed to spot
Auditors should be approved and licensed as operators in recognised standalone profession, it has been claimed in a review of the sector.
Sir Donald Brydon, chairman of the Sage Group, who led the review, said a new regulator would train up and approve the new class of auditors.
The year-long review is the third commissioned by the government to look into how the biggest consultancy firms – Deloitte, EY, KPMG and PricewaterhouseCoopers – are regulated on the back of a number of high profile failures to spot companies in trouble.
Pressure for reform intensified after the collapse of construction company Carillion in January 2018, shortly after it had been audited.
A government inquiry into the Carillion scandal revealed that KPMG had earned £29m in fees.
Sir Donald, the former chairman of the London Stock Exchange, insisted that the directors, not auditors, were responsible for a company’s failure.
But he suggested that a new professional qualification should be required for those who sign off on the financial health of companies, who currently qualify as accountants first.
“It was quite a startling discovery to me that there was not an audit profession as a standalone entity,” he said.
“The qualities you need to be an auditor are quite different to those that you need to be an accountant.”
Sir Donald had more than 150 meetings with regulators, auditors, investors, companies and professional services firms.
His review also calls for increased transparency in the sector, with a new demand for firms to publish more about their profits and how much people in these companies earn.
It suggests that shareholders should be able to question auditors at annual company meetings and puts new responsibility on directors to explain what they have done to help prevent fraud.
Commenting on Sir Donald’s report, CMA chairman Andrew Tyrie said: “These robust proposals are a big step forward.
“Millions of people’s pensions and savings rely on high quality audits of major companies. But successive examinations have revealed that too many fall short.
“This report joins Sir John Kingman’s, the Business Select Committee’s and the CMA’s, all pointing in the same direction, that legislative reform to implement all of them is now essential.”
The findings were welcomed by Stephen Griggs, deputy CEO of Deloitte who said the report added “much needed clarity”.
“There are challenges to audit firms and the wider profession around how we can go further in terms of transparency, independence and communication,” says Mr Griggs who is also the managing partner for audit and assurance and public policy.
A representative from PricewaterhouseCoopers say they are “working hard to enhance the quality of our own audits”.