The UK’s Financial Reporting Council (FRC) is to consider whether auditors should be banned from providing consulting work for bodies they audit as part of a wider review to prevent auditor independence from being compromised.
The FRC has said it will work closely with UK’s Competition and Market Authority (CMA) in this area.
A review, which will cover audit independence as well as audit quality and the future needs of investors and corporate viability, has been announced by the watchdog in an attempt to ‘ensure audit better serves the public interest’.
As part of the review, the FRC is to develop proposals to strengthen requirements on auditors when considering whether an organisation is a going concern. This will include ‘whether the responsibilities of auditors in assessing companies’ statements on their longer term viability should be enhanced and whether auditors should report publicly on their views of the realism of assessments made by companies’.
The watchdog acknowledged that recent company failures were part of the reason for the investigation.
FRC CEO Stephen Haddrill said: “This comprehensive reform programme addresses the fundamental issues underlying falling trust in business and the effectiveness of audit, whilst also looking to ensure that the requirements on what companies say about themselves are fit for the future needs of stakeholders. If stakeholders are to have confidence in audit, they also need to have confidence in audit rules and regulation.
“The FRC has reviewed how we can improve audit quality and our supervision of audit firms. In addition to the programme set out today we look forward to proposals from Sir John Kingman and the CMA.”
Haddrill made reference to John Kingman who is currently leading an investigation to determine whether the FRC is fit for purpose. The investigation was launched upon request of UK members of parliament following the inquest into the collapse of Carillion.
The CMA is also in the process of determining whether a formal investigation into the lack of competition in the UK’s listed audit market is necessary.
The UK audit market has received a large amount of political scrutiny over the last year due to a range of high profile company failures. Along with formal investigations in to the state of the profession, the Big Four and five of the other leading firms have held meetings with the Institute of Chartered Accountants in England and Wales over the summer to develop proposals in an effort to curb the dominance of the Big Four in the listed audit market.