Big Four and challengers ask for leeway on difficult audits to avoid public criticism
The Big Four and the challenger audit firms have asked the accountancy watchdog for more leniency when it comes to more difficult audit jobs, for fear of public criticism if they make a mistake.
Audit firms have asked the Financial Reporting Council (FRC) to pause quality inspections of their work for a year if they agree to audit high-risk companies listed on the London Stock Exchange, the Financial Times first reported.
They said work for new clients should also be exempt from scrutiny because of the difficulty of auditing a company for the first time, and consequential fears of criticism for any mistakes made.
The pleas took place on a January call with the FRC, which was attended by representative of the Big Four – Deloitte, EY, KPMG and PwC – and so-called challenger firms BDO, Grant Thornton and Mazars.
The FRC reportedly rejected the proposal that new clients should be totally exempt for annual quality inspections.
According to the FT, one auditor said that unless the FRC gave firms some leeway if they took on difficult audits, “the best thing for us to do is swerve it”. Another added that putting people off high risk audits was “not a good outcome”.
When the FRC dismissed the proposal, the auditors on the call suggested the regulator could instead inspect the audits of new or potentially high-risk companies, but that the results would be excluded from the audit firms’ public grades, allowing for the watchdog to identify areas for improvement, while shieling auditors from public criticism.
Audit firms have come under increasing pressure in recent years following accounting scandals and administrations such as Carillion and Patisserie Valerie that undermined public and investor confidence in the sector.
The Department for Business, Energy and Industrial Strategy (BEIS) is currently taking responses to a consultant that it hopes will introduce policies that will lead to greater transparency in the sector, as well as more robust and rigorous audits of the UK’s largest firms.
The FRC, Deloitte, EY, KPMG, PwC, BDO, Grant Thornton and Mazars each declined to provide comment to the Financial Times.