Stephen Haddrill, CEO of the UK’s Financial Reporting Council, took a £60,000 pay cut for the 2017/2018 financial year, and chose not to be considered for a bonus, the regulator’s annual review has shown.
His pay, along with that of the rest of the staff at the FRC is likely to change next year, as the regulator carried out a pay review over 2018, and plans to implement aspects of this over the next financial year.
In its review, the FRC also reported a notable drop in the proportion of FTSE 350 company audits reviewed which required no more than limited improvements. In 2017, 81% fell into this category. In 2018 this number fell to 73%.
Haddrill singled out KPMG for criticism, and said there had been an ‘unacceptable deterioration’ in quality from the Big Four firm. He said: “We are holding KPMG to account, in relation to its action plans, and have increased our planned inspections of its work for 2018/19.”
He added that all firms reviewed had proved themselves capable of delivering high quality audits, but, to varying degrees, this quality was not delivered consistently.
The audit market has come under much public scrutiny this year, following a number of high profile corporate failures, and the Competition and Market Authority is in the process of reviewing whether there is enough competition of the market.
Haddrill noted this concentration at the top of the market remained a serious concern for the FRC. He said “Any of the largest firms leaving the audit market under current conditions would lead to serious shortcomings in its operation and we are discussing this issue with the Competition and Markets Authority.”
The decline in audit quality was matched with a notable increase in finances issued. For the most recent financial year, it issued £13.1m in fines, compared to £9.3m the year before and just £1.3m the year before that. Since the 2018 year end, the FRC noted it has already fined KPMG £3.15m in relation to its audit of Quindell and PwC £6.5m in relation to its audit of BHS and the Taveta Group.
The FRC itself has not been without criticism last year, with people suggesting it is too close to the industry it is meant to be overseeing. The Government has launched a review, led by John Kingman (The Kingman review) to investigate the FRC.
In his introduction Winfried Bischoff, chairman of the FRC acknowledged these criticisms and said he welcomed the review, and its intention to ensure that the FRC is equipped with the best regulatory practise, processes and powers to meet changing public expectations.