In July, the FRC revealed that of the 88 audits it inspected at the seven biggest firms, there were significant issues with 29.
This finding chimed with IoD member views, with four in ten expressing doubt about the effectiveness of statutory audit. Thankfully, reform is coming – just don’t ask when.
Over recent years, reviews by Sir John Kingman, Sir Donald Brydon, and the CMA among others have made recommendations ranging from mandatory joint audits to market caps. While it may demur from some of these proposals, the Government did commit to creating “a stronger regulator with all the powers necessary to reform the sector” in its December 2019 Queens Speech.
In the meantime, the existing regulator - the FRC - pressed ahead with reforms to the market, for example calling on the Big Four to separate audit from other operations by June 2024. Though a welcome step, the regulator still lacks power to hold auditors to account when things go wrong.
However, more than eight months on from the Queen’s Speech and a number of major auditing scandals since, we appear no closer to seeing the promised tougher watchdog. Of course, the pandemic has put pressure on Parliamentary time. But with audit reform an area of broad cross-party consensus, there is a strong case for the Government to prioritise it when MPs return from recess in September.