The Business, Energy and Industrial Strategy Committee (BEIS) plans to launch an inquiry into the UK audit market in 2019.
In a speech delivered at The Institute of Chartered Accountants in England and Wales headquarters on Monday, chair of BEIS Rachel Reeves said that the inquiry will follow the publication of the Kingman review and Competition and Markets Authority investigation.
Reeves said that the inquiry will consist of public hearings involving the Big Four, audit committee chairs, regulators and other stakeholders.
In her speech, Reeves was critical of both regulators and auditors. She said: “Some people tell me that if you break up the Big 4 or give more work to the smaller firms, quality will suffer. That would be a fair argument, if the quality of audits today were good or outstanding. They are not.”
She commented on her lack of confidence in the UK’s Financial Reporting Council (FRC): “My impression is that the FRC has for too long been going for the quiet word over G&Ts in City watering holes, when it should have been shouting from the rooftops about unacceptable performance and imposing effective sanctions.
“Carillion is only the latest example of a toothless regulator who was asleep on the job. Or co-opted by the industry it is supposed to regulate. The FRC has been far too passive, too timid, and too close to the firms it regulates.”
The lack of the competition in the audit market has been the focus of political and public criticisms over the last year. However, Reeves noted that increasing competition would not necessarily increase the quality of audit.
She said: “There is no safe reason to assume that handing over to another auditor will resolve the problem. Only recently, the scandalous mismanagement of Patisserie Valerie – a firm reliant on Grant Thornton – showed how much we would be deceiving ourselves if we thought the solution were that simple.”