Britain's 'broken' audit sector must change - MPs

LONDON (Reuters) - Britain’s parliament will start an inquiry into auditing in January to ensure that two pending reviews will lead to actual reform of a “broken” sector dominated by the Big Four accounting firms, a senior lawmaker said on Monday.

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Rachel Reeves, chair of parliament’s business select committee, said accounting scandals at construction firm Carillion, retailer BHS and cafe chain Patisserie Valerie showed that lawmakers must get involved to push through change.

The Competition and Markets Authority (CMA) is due to report findings from its fast-track investigation of auditing, a sector where Deloitte, PwC, EY and KPMG check the books of 341 of Britain’s top 350 listed companies.

A separate review for the government by John Kingman is looking at how the sector’s regulator, the Financial Reporting Council (FRC), could be strengthened.

It will also report back by the end of the year.

Reeves said doing nothing was not an option, but such reviews were often left to gather dust rather than result in action.

“Our Committee’s inquiry ... seeks to ensure these reviews are acted upon swiftly and effectively and that they genuinely deliver the improvements to audit quality and corporate governance,” Reeves said in speech on Monday made available in advance.

“The audit market is broken. The Big Four’s overwhelming market domination has failed to deliver audits which are fit for purpose,” Reeves said.

Members of parliament have already called on the CMA to consider forcing the Big Four to separate their audit and advisory work to avoid potential conflicts of interest when a customer receives both services.

KPMG decided this week to stop selling advisory services to its audit clients, a step that Deloitte and PwC signalled some support for.

Reeves also urged Kingman to propose reforms of the FRC because of its “toothless and passive” record in punishing audit failures, until a “recent conversion” when it began levying record fines.

Stephen Haddrill, chief executive of the FRC who is standing down next year, said he also wanted the Kingman and CMA reviews implemented quickly.

“As we have consistently proposed, there are areas where the regulatory framework should be strengthened. We would therefore welcome parliamentary support in the event the Kingman review agrees that our statutory remit should be enhanced,” Haddrill said.

MPs will begin holding hearings in January to hear from representatives of the Big Four and their “challengers”, Kingman, the CMA, finance chiefs of large listed companies, the FRC, and the ICAEW, a professional accounting body.

Reporting by Huw Jones; editing by David Evans and Jason Neely