October 15, 2019 / 4:44 PM / a month ago

Britain delays reform of company audits until early 2020

LONDON (Reuters) - Britain will wait until early next year before implementing root-and-branch reform of auditing, a government minister said on Tuesday, dismissing claims of “drift”.

FILE PHOTO: Britain's Secretary of State for Business Andrea Leadsom is seen outside Downing Street in London, Britain September 25, 2019. REUTERS/Henry Nicholls

The collapse of retailer BHS and construction company Carillion prompted two reviews into the quality of audits in Britain.

The first from John Kingman proposed a new accounting regulator to replace the Financial Reporting Council (FRC) that currently oversees the industry.

A second from the Competition and Markets Authority proposed that big companies hire two auditors instead of one.

Since then the collapse of travel company Thomas Cook has highlighted that no change has taken place since the two reviews were published in December 2018, lawmakers said on Tuesday.

A third review, chaired by British businessman Donald Brydon into the purpose of audit, will report back later this year.

“It’s certainly my intention that we take forward this work in the first quarter of next year to ensure we maximize all the learning points,” business minister Andrea Leadsom told parliament’s business committee on Tuesday.

By that time, the government would have the benefit of the “full suite” of advice from all three reviews, Leadsom said. It is the first indication that the government is looking at a package, rather than piecemeal changes.

Legislation is needed to implement core reforms proposed by Kingman and the CMA, but this was absent from the government’s list of upcoming bills announced on Monday.

In a letter to parliament’s business committee on Tuesday, Kingman said the government clearly had many competing priorities, a reference to parliament’s overwhelming focus on Britain’s departure from the European Union.

“But given the unequivocal consensus around the need for change, I am concerned about the risks of letting the FRC drift on, half-reformed and lacking the teeth that only legislation can give it,” Kingman said.

Leadsom said that many of the Kingman reforms could and were being implemented without legislation. A new FRC chair and chief executive took up the reins this month and launched a drive to recruit 80 more staff to beef up enforcement.

The CMA proposed joint audits for most big listed companies, meaning two auditors must be hired, with one not from the ranks of EY, KPMG, Deloitte and PwC, the “Big Four” that dominate the sector.

The government has yet to say whether it wants to implement joint audits, a reform that been met with scepticism even from the FRC’s new chair Simon Dingemans.

Industry officials believe the government may opt for less radical shared audits, whereby a non Big Four auditor only takes on a portion of a company audit.

Reporting by Huw Jones. Editing by Jane Merriman

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