Government unveils audit reform

Government unveils audit reform 

High profile failures such as the Thomas Cook, Carillion and BHS debacle have placed pressure on the Government to improve audit regulatory standards and to restore confidence in financial reporting.

The Big 4 dominate the audit market however as the Big 4 also provide other lucrative services to their audit clients, this questions their independence, and the conflict of interest has become too large to ignore.

The proposal is to dilute Big 4 dominance by requiring the larger companies to use smaller audit firms to conduct part of their annual audit.

In addition, company directors will face more responsibility to ensure accounts are accurate or face tougher penalties.

This new initiative will be spearheaded by a new accountancy watchdog, the Audit, Reporting and Governance Authority (ARGA).

ARGA’s role will be to implement the changes, replacing the Financial Reporting Council (FRC). It would have legal powers to force auditors and companies to resubmit accounts without the need for court action.

In addition to ARGA, UK companies and directors also face restrictions on dividend and bonus payments if there is misconduct, they publish inaccurate accounts, or have insufficient cash reserves.

To clamp down on “rewards for failure” directors of failed firms could also see their bonuses clawed back up to two years after a pay award is made.

By providing more transparency over company accounts the new rules should also help deter firms that could be facing insolvency from making largescale dividend and bonus payments. They will also be required to produce “resilience statements”.

As a medium sized practice, we at Haslers welcome these reforms. We feel that it is of paramount importance to rebuild trust and confidence in the audit profession. We look forward to new opportunities in the audit market and to showcase our robust audit approach.   Contact us for information.

 

Government unveils audit reform
Government unveils audit reform

Government unveils audit reform