UK accountants face possible ban on consultancy work
LONDON (Reuters) - Britain’s accounting watchdog said on Monday it may ban accounting firms from providing consultancy work to firms whose books they check.
FILE PHOTO: A worker operates a crane on Carillion's Midland Metropolitan Hospital construction site in Smethwick, Britain January 29, 2018. REUTERS/Darren Staples/File Photo
Under pressure from lawmakers to toughen up supervision of accountants after collapses at outsourcer Carillion and retailer BHS, the Financial Reporting Council announced a new “strategic focus” to ensure that audit serves the public interest better.
The Big Four accountants, PwC, EY, Deloitte and KPMG often provide lucrative consultancy work to the same firms whose books they check, raising concerns that accountants may not be willing to challenge management of those companies.
“The review will include determining whether further actions are needed to prevent auditor independence being compromised, including whether all consulting work for bodies they audit should be banned,” the FRC said in a statement.
The FRC will work closely with the Competition and Markets Authority (CMA) in this area, it said.
Taking lessons from recent company failures, the FRC said it will look to toughen up requirements for auditors to determine if a company is correct in stating it is a going concern, meaning it has enough resources to continue in operation for a year or more.
The review will consider if accountants should say publicly if they have doubts about “realism” in a company’s statement on going concern, the FRC said.
The government has already ordered an independent review of the FRC after it was described by lawmakers as timid in its handling of accounting firms.
The review by John Kingman will report by later this year and could propose increasing the FRC’s powers or a more radical restructuring.
The CMA has already heard proposals from the UK accounting sector setting out temporary curbs on how many big listed companies the Big Four can audit.
The proposals are aimed at meeting lawmaker criticisms that the Big Four, who audit nearly all blue chip companies, don’t face enough competition.
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