Auditors face crackdown

THE accounting watchdog is cracking down on conflicts of interest at beancounters.

Firms which audit companies will now be banned from giving other advice, such as on recruitment and pay, and cannot play any part in management decision-making.

The Financial Reporting Council (FRC) said auditors will only be able to perform a small selection of other roles for public interest entities, mainly listed companies, banks and insurers, where those roles are closely linked to the audit. It means the

Big Four accountants – Deloitte, EY, KPMG and PwC – will miss out on millions of pounds of lucrative consultation work.

The FRC’s scrutiny follows the failure of Carillion, Patisserie Valerie and Thomas Cook, where auditors were accused of failing to flag concerns.

Following the collapse of Thomas Cook, PwC was criticised for its ‘clear conflict’ as it audited the company between 2007 and 2012 and gave recruitment and pay advice. FRC chief executive, Jon Thompson, said: ‘High-quality audit supports the effective functioning of capital markets and gives investors confidence.

‘Where audit fails, that confidence is undermined. The steps we have taken in revising our standards include measures which stakeholders have identified as important to strengthen their confidence in audit, by ensuring greater independence and a focus on delivering high quality and consistent work.’

Even though the Big Four have pledged to clean up their act, over the last year they have all made 5pc to 8pc of their revenues from non-audit services.