London unveils watered-down audit reform plans
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Britain Tuesday unveiled long-awaited reforms to the country's corporate reporting and audit regime via a new regulator after a swathe of recent high-profile backruptcies -- but the revamp is a watered-down version of an originally mooted shake-up.
The audit sector has been criticised for failing to forecast the shocking bankruptcies of the BHS retail chain in 2016 (PwC), the construction group Carillion in 2018 (KPMG) and the tour operator Thomas Cook in 2019 (EY).
London's new plans are designed to break the stranglehold of the "big four" auditors -- but lofty initial ambitions touted more than a year ago have been scaled back in the face of a backlash from private business.
In a statement, the government unveiled a consultation paper which it said would overhaul the system through a new regulator, making big business moe accountable and ramping down the dominance of the big four firms to increase trust.
To limit the hitherto "unhealthy dominance" of Deloitte, EY, KPMG and PWC -- the country's 350 largest listed companies will have to carry out at least some of their audits with another provider.
The government pledged to create a new regulator to "reduce the risk of sudden big company collapses, safeguard jobs and reinforce the UK’s reputation as a world-leading destination for investment," giving the regulator powers to ban failing auditors from reviewing large companies’ accounts.
But the plans are less ambitious than originally proposed. The reform will target unlisted companies with more than 750 employees and an annual turnover of more than £750m, the statement said -- down on the envisaged threshold of 500 employees and £500m, which would have affected more companies.
Several British media outlets pointed on Monday to the influence of lobbies in this retreat.
Britain's Minister for Corporate Responsibility Lord Callanan said: "Collapses like Carillion have made it clear that audit needs to improve, and these reforms will ensure the UK sets a global standard."
The statement said "the Financial Reporting Council will be replaced by a new, stronger regulator – the Audit, Reporting and Governance Authority (ARGA) – with tougher enforcement powers and funded by a levy on industry."
ARGA will have the power to require large firms to separate their audit functions from their other services.
The audit reform will also force large companies to be more transparent about their results and will prohibit the distribution of dividends if they are on the verge of bankruptcy.
But smaller companies will be spared the new requirements and may even see their reporting obligations lightened.