The Big 4’s responses reveal some of their thinking about the proposed CMA review of the UK’s audit market (the special report includes a brief response from Andrew Tyrie, then incoming chair of the CMA), following reports this week that they have been asked by the CMA to provide it with “non break-up” options, and that the Bank of England’s Prudential Regulation Authority is mulling blocking Goldman Sachs’ attempt to appoint an auditor outside the Big 4.
The FRC’s response sets out some details about its investigation into “the audit of the company and the conduct of two of its accountants who fall within the scope of our remit”, highlighting the issue which has become apparent also in its recent report on BHS: that no matter who provides the financial information and statements to be checked by auditors, their conduct can only be investigated if they are a qualified accountant.
Their response also suggests that, unlike the case of BHS and PWC, they do not expect any wrongdoing they find to be admitted: “Once the investigations are complete, the FRC Executive Counsel will determine whether the legal threshold is met to bring disciplinary proceedings. As matters stand it should be expected that if proceedings are commenced, they will be contested.”
The ICAEW Chief executive Michael Izza repeats the position he expressed on the Today programme the day the committees’ Carilion report was published: “If we do not … [learn and apply the lessons from Carillion in ways that will help sustain public trust in audit and confidence in business] … we will not have a profession worthy of the name in the UK in twenty years’ time”
Rt Hon Frank Field MP, Chair of the Work and Pensions Committee, said:
“Once again, the fingers are out pointing everywhere but here. The Big 4 admit there is a problem but insist their break up is no part of the solution. How the CMA deals with the lack of audit competition will be the sign of whether the new chairman is able to break this existing culture and impose a new one which makes clear that his organisation is about delivering for individuals, and not for cosy oligopolies. Business as usual brought us Carillion. It is bad for the good business that is the lifeblood of our economy, for workers, and for pensioners. We’ve learned the lessons, get on with it.”
Rachel Reeves MP, Chair of the BEIS Committee, said:
“Carillion’s collapse was a corporate disaster and the architects of its failure were the company’s directors. As a PR exercise they weakly told the Committee that they took responsibility for the company’s collapse but sought to blame everyone but themselves. Now, when given another opportunity to face up to the responsibilities for which they were so well remunerated, they again wriggle out of accepting culpability.
“Even the Big 4 have started to recognise that business cannot go on as normal, with investors losing faith in the accounts, a woeful lack of meaningful competition, and consulting and auditing relationships that are far too comfortable for the public or investors to expect any real challenge. The CMA needs to closely examine the audit market and as a Committee we will be keen to see what remedies are proposed to fix the broken audit market.”