UK accounting watchdog plans to bolster audit firm governance

Britain’s accounting watchdog plans to strengthen “significantly” its audit firm governance code, it said on Thursday, after a number of issues around audits of UK firms in recent years.

The Financial Reporting Council’s code applies to the Big Four accounting firms - Deloitte, EY, KPMG and PwC - and to other firms auditing FTSE 350 companies, the FRC said in a statement.

In future it will also apply to firms which audit other types of public interest entities, the FRC said.

“Audit firms which have applied the Audit Firm Governance Code have used it as a catalyst for introducing both external challenge into their operations and for improved levels of oversight,” said FRC executive director of regulatory standards Mark Babington.

“These proposals will provide a springboard for further progress in improving audit quality and market resilience.”

Government-backed reviews proposed a shake-up of the industry after retailer BHS and builder Carillion collapsed following Big Four audits.

The FRC this week fined EY 3.5 million pounds for failing to challenge financial statements in its audit of transport group Stagecoach Group’s in 2017.

The watchdog is consulting on the proposals, which include clarifying the role played by partnership boards in holding management to account and separating the roles of board chair and senior partner or chief executive.