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Government Consults on Plans to Overhaul UK’s Auditing Industry

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Proposals that would in part aim to break up the dominance of the ‘Big Four’ providers of auditing services in the UK have been put forward by the government.

A process of consulting on the proposals has now been initiated, with the ultimate aim said to be “restoring business confidence” in the UK’s auditing regime.

References made alongside the proposals for a UK-wide corporate governance overhaul point to high-profile company failures of recent years, including those of Carillion, Thomas Cook and BHS, as being part of the motivation for the rethink.

The collapse of those three formerly very large-scale operators led to “severe job losses and the British taxpayer picking up the bill,” the government has noted, with improvements to the UK’s auditing regime representing an essential part of the plan to prevent such outcomes from arising in future.

Key ambitions of what are being framed as a “wide-ranging reforms” will be to improve transparency across corporate governance contexts and to ensure that scrutiny of big companies is consistently “robust and rigorous”.

Another priority goal for the proposed reforms is to “unleash competition in the audit market” with the government pointing out that almost a third of FTSE 350 audits carried out last year required improvements upon closer inspection. 

Efforts to stimulate greater competition within auditing markets will in part be about breaking up the dominance of the so-called Big Four firms, namely KPMG, PwC, Deloitte and EY, which currently handle the vast majority of audits at big companies based in the UK.

“It’s clear from large-scale collapses like Thomas Cook, Carillion and BHS that Britain’s audit regime needs to be modernised with a package of sensible, proportionate reforms,” commented Kwasi Kwarteng, business secretary, in a statement alongside the new proposals.

“By restoring trust in our corporate governance regime and encouraging greater transparency, we will provide investors with clarity and certainty, cement the UK’s position as the best place in the world to do business, and protect jobs across the country,” Mr Kwarteng added. 

In addition to making auditing markets more competitive, the government has made clear it aims to ensure more “rogue directors” are brought to account if it can proved that they bear personal responsibility for significant errors that led to a company collapsing.

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