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UK audit reform progresses at a snail's pace
iStock_Nuthawut Somsuk_Snail's pace

Audit reform limps into the final stretch

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The government buried much-needed plans to reform audit at the bottom of the Queen's Speech paperwork. The portents for improvement are not encouraging.

17th May 2022
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You have to feel sympathy for Her Majesty the Queen. It must be tough trying to carry out important duties in your late 90s. I have to stop the confession. When I heard that she was unable to attend Parliament, it seemed odd that this was due to what I misheard as “nobility issues”. Is anyone nobler than the Queen?

One wonders whether her decision to convert the Queen’s Speech to Parliament into the Prince of Wales’s speech might have other possibly subconscious ulterior motivations.

It can’t be much fun parroting the words of a Prime Minister who lies to you and has spent most of the last parliamentary session desperately trying to save his job, rather than pursuing policies to avert a cost-of-living crisis.

As if that wasn’t bad enough, we now discover that the Leader of the Opposition and his deputy could both soon be joining the PM and Chancellor of the Exchequer at the job centre.

Ignoring minor issues of this type, the Queen’s most egregious (2022’s most popular word?) concern might well have been the fate of plans to reform the audit industry. There was no sign of the audit reform bill in the speech her son presented, but after some frantic searching through the paperwork the professional bodies had to recall their press releases and adjust the tone of their pronouncements. Only slightly, though, which is the tack that this column is going to take.

Poor track record

Readers will have to forgive this columnist for harping on about the appalling performance of audit practices, especially those in the Big Four, where multi-million-pound fines are becoming commonplace.

If auditors really cared about doing their jobs properly, then surely they would not be wasting vast proportions of their time in front of disciplinary committees.

In turn, this would mean that they didn’t end up on the front pages of the papers, accused of negligence as yet another large-scale audit client goes bust, sometimes as a result of fraud, often merely because nobody spotted that the business was not a going concern when it was not a going concern.

The poor performance long ago reached the point where there was general acceptance that the Financial Reporting Council was as far from fit for purpose as those whom it was supposed to be regulating, while various parliamentary committees have been highly critical of an industry that has not been delivering and didn’t seem to care.

Sometimes, we get too tied up in our own obsessions. Just imagine if surgeons or those providing maintenance services for planes were as slapdash as auditors.

The good news for accountants is that it doesn’t matter how badly you do your job nobody dies. Admittedly, some people might get poor as a direct consequence but the scandals are normally restricted to a bit of mudslinging rather than appearances in the High Court after indictments for individual or corporate manslaughter.

The reputation of the industry might be heading towards rock bottom but who cares as long as we can charge healthy fees for doing the minimum possible and quite often get away with it?

One imagines that smaller practices are likely to follow the lead of the Big Four and therefore they will also be letting standards slip but that might not be the case? Readers may wish to provide views based on their own experiences.

A gesture towards reform

For what seems like years, we've been hearing about plans for a new regulatory body with serious intent, that would be serious powers and much greater independence from the profession as a whole to counteract the all-too-apparent failure. At last that prospect seems to be on the cards with the enacting legislation being lined up to create the Audit, Reporting and Governance Authority (ARGA).

Before you get too excited, however, it is worth noting that the Prince of Wales’s speech contained no fewer than 38 bills, which could be far too many to get through a fractious Parliament before the summer break. Therefore, it may be unwise to bet your house on something as inconsequential as audit reform making it to the statute books again much fierce competition.

If it does get to the starting line, the new body may have a struggle on its hands to reverse the tide of public opinion. More importantly, it looks suspiciously like an afterthought from a government that has been willing to tolerate collective under-performance of the UK's listed company auditors for a decade or more. Even then, one could ask whether this sop to reforming zeal will have the desired effect or merely replace one toothless regulator with another.

In reality, the status quo will almost certainly continue. Poor audits are going to be the norm and we might have to wait many years before any government has the time or the will to get auditing back on track.

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By Hugo Fair
17th May 2022 16:34

"The good news for accountants is that it doesn’t matter how badly you do your job nobody dies" looks like a good soundbite - but it's simply not true.

Since you're so fond of the word, I'd suggest an egregious example would the P.O. Horizon fiasco - which was all about appalling accounting & auditing (not just the Fujitsu software), and lead to rather more than "some people might get poor" (an award for smugness is on its way) ... with lengthy prison spells, family breakups and suicides. And then there's the indirect impacts ...

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