The audit profession has been under pressure in recent years, with much publicised scandals at Tesco, Patisserie Valerie, BHS and Carillion propelling the usually quiet world of audit to the forefront of public consciousness for all the wrong reasons. Presumably with cries of ‘where were the auditors?’ resounding in her ears, Rachel Reeves, the chair of the Business, Energy and Industrial Strategy Select Committee, commented in November 2018, when launching an inquiry into the future of auditing, that “Misleading audits have been at the heart of corporate failures over recent decades. Recent accounting scandals at BHS, Carillion, and at Patisserie Valerie have shown accounts bearing closer resemblance to works of fiction than an accurate reflection of the true financial performance of the business. Repeated accounting failures have contributed to the collapse of major businesses and undermined public and investor confidence. The audit market is broken.”

Consequently, the profession has come under enormous scrutiny, with the Competition and Markets Authority (CMA) undertaking a study ‘to see if the market is working as well as it should’ and Sir John Kingman carrying out an independent review for the government on the role and performance of the regulator, the Financial Reporting Council (FRC). With the dominance of the ‘Big Four’ audit firms ─ KPMG, PwC, EY and Deloitte ─ being called into question, and even the performance of individual audit partners coming under challenge, there are some serious governance concerns that also need to be addressed.

Apr-Jun 2019 Issue

ICSA: The Governance Institute