Challenger accountants singled out as audits fall short

THE accounting watchdog has criticised BDO and Mazars for the “unacceptable” and “concerning” quality of their audits in a blow to the regulator’s efforts to break the dominance of the “big four”.

In its annual review, the Financial Reporting Council singled out the two challenger firms for failing to meet required quality standards and said they would be placed under specific supervision by the regulator.

The review will raise concerns about plans to allow mid-tier firms to win a greater share of the UK accounting market, which is dominated by the oligopoly of KPMG, Deloitte, PWC and EY.

The FRC said: “[BDO and Mazars] have been growing too fast, picking up higher risk audits being dropped by their peers, without adequate controls to ensure high quality audits.”

Ministers have drawn up proposals to overhaul accounting and corporate governance rules in the wake of a raft of accounting scandals in recent years such as those at Carillion, BHS and Patisserie Valerie.

The report, which reviewed audit quality at the UK’S top seven accounting firms, found that three quarters of audits inspected were good or required limited improvement, up on 71pc last year and 67pc in 2020.

However, the FRC found that only 58pc of the 12 BDO audits it inspected were of acceptable standard, while only half of the eight Mazars audits examined were up to scratch.

Meanwhile, after a tumultuous year, the quality of KPMG’S audits improved significantly after it was singled out for criticism last year. The regulator said the improvement was “promising, but is not yet a trend”, adding that it would continue to “closely monitor” the firm’s banking audits.

Scott Knight, head of audit at BDO, said: “We’re disappointed this year’s grades do not meet the standards expected by the regulator and our leadership team, and will continue to work hard to fully address the FRC’S findings.”

A Mazars spokesman said: “We are committed to addressing the issues that have been identified as part of our continuous quality improvement plan.”