Auditors held to account as CMA proposes major reforms

AUDITORS face a battle on several fronts after regulators set out a wave of proposals aimed at boosting competition, tackling conflicts of interest and tightening sector oversight in the wake of several high-profile failures.

The Competition & Markets Authority (CMA) stopped short of calling for a full-scale break-up of the accounting giants’ auditing and consulting arms, but said they should be split into separate operating units with distinct management, accounts and remuneration.

It also called for members of the FTSE 350 to have their books looked at by more than one auditor, one of which would have to be from outside the “Big Four” of Deloitte, EY, KPMG and PWC.

A separate Government-commissioned review, by Legal & General’s chairman Sir John Kingman, called for an end to self-regulation and for the Financial Reporting Council to be folded into a new watchdog with a wider remit that would answer to Parliament.

The Government is also expected to kick off a third review today headed by London Stock Exchange chairman Donald Brydon.

Sky News reported that the new investigation, dubbed “Project Flora”, would look at the future of auditing and the quality of audit work in the UK.

Around 97pc of the FTSE 350 have their audits conducted by one of the Big Four. The CMA’S chairman Andrew Tyrie, a former MP and head of the Treasury select committee, said auditing reforms were “long overdue” and while most people will never read an auditor’s report, “tens of millions of people depend on robust and highquality audits” for their jobs, pensions and savings.

A spokesman for the FRC said it welcomed Sir John’s report.