Government proposals to reduce the dominance of the ‘Big Four’ accountancy firms – PwC, KPMG, Deloitte and EY – are being welcomed by the industry after they were unveiled last week.
The government, which will begin a 16-week consultation on the new proposals, aims to improve regulatory standards after a large number of high profile corporate failures, including Carillion and BHS, as well as concerns that providing both accountancy and auditing services creates a conflict of interest.
The proposals will include putting in place new rules that require large companies to use smaller auditing firms and placing more responsibility on company directors to ensure accounts are accurate. Additionally, the Big Four could see a cap on the number of companies on the FTSE 350 they can audit.
The hope is that the new proposals will restore confidence in business and help restore the economy. Business Secretary Kwasi Kwarteng said:
“When big companies go bust, the effects are felt far and wide with job losses and the British taxpayer picking up the tab.”
UK companies and directors also face curbs on dividend and bonus payments if there is evidence of misconduct, they publish inaccurate accounts, or they have insufficient cash reserves. Directors of failed firms could also have to pay back their bonuses up to two years after a pay out.
A new accountancy watchdog - the Audit, Reporting and Governance Authority (ARGA) - will also be established to replace the existing Financial Reporting Council (FRC).
Smaller accountancy and auditing firms are welcoming the new proposals, including Perrys. Our Partner, Declan McCusker, who is based at our London Mayfair practice, said:
“This is a positive step towards reforming the auditing process, ensuring there is more transparency in company accounts and making sure that the highest possible standards are maintained. Diluting the dominance of the Big Four will also open up more opportunities for smaller accountancy and auditing firms, which I believe will help to improve job and career prospects for the whole sector.”
Employers’ groups are also in support of the plans. The British Chambers of Commerce said the changes would be a “positive step”.
If you would like to discuss auditing or you are looking to appoint a new auditor, please contact your local Perrys branch for further information.