Britain’s regulatory body pressures accounting firms to separate their units with a view to improving the quality of audits
Britain’s regulatory body pressures renowned accounting firms known as “Big Four” to separate their units with a view to improving the quality of audits
The idea came about when the Enron scandals in 2001 and the WorldCom in 2002 precipitated the disappearance of Arthur Andersen, the accounting firm that was part of the Big Five. Since then all four of the current group remained: PwC, Deloitte, KPMG and EY.
Arthur Andersen was then providing accounting and auditing services to large corporations. Those scandals and the dot-com bubble led to the enactment in 2002 of the Sarbanes-Oaxley Act, also known as the Public Company Accounting Reform and Investor Protection Act. But the desired reform was never fully achieved and now the attempts return.
There is already a deadline for separation
As reported on Monday by the English newspaper Financial Times, the UK government has already set a deadline for the Big Four. Accounting firms have until 2024 to separate their auditing practices, according to an edict from the regulatory body that marks the biggest industry overhaul in a long time.
The Financial Reporting Council (FRC) published the principles for the operational separation of the audit units from PwC, Deloitte, KPMG and EY. Firms have until the end of October to describe their plans to implement the 22 principles, and until June 2024 to complete the measures.
Accounting firms have until 2024 to separate their auditing practices.
It is the first structural overhaul of the way groups operate since 2018, when many overhauls were made because of the collapse of Carrillon, the multinational construction company. Then there were more high-profile collapses: BHS, Thomas Cook, and most recently Wirecard. All of those cases increased pressure from regulators.
The new FRC principles require that firms pay auditors according to the earnings from their audits, who protect the finances of the audit division with a separate account profit and loss and enter a body of independent auditors to control practice. The objective is to get better the quality of the audit.
Changes in the big four: what companies think
The FRC trusts the voluntary compliance of the signatures but it is suspected that this body is going to be replaced by another more powerful regulatory body called Audit, Reporting and Governance Authority, who would have more powers to impose changes on the Big Four.
KPMG and Deloitte demonstrated in accordance with the British government measure.
Jon Holt, Head of Audits, KPMGHe said the FRC announcement is “just the first step in restoring confidence in British companies,” adding that “KPMG supports operational separation in Britain.”
Stephen Griggs, Head of Audit, Deloitte He said: “We celebrate this clarity of the FRC on the principles of operational separation and continue to work with them to develop our plans in the coming months. We remain committed to playing our role in realizing improved audit quality and restoring confidence.” .
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