Review is third prong of investigations into whether Big Four audit firms need to be overhauled
Baroness Vadera, chairman of Santander UK, has been lined up to lead a government-backed review into the future of auditing in Britain.
According to The Times, Lady Vadera, 56, would lead an investigation into whether the auditing model is fit for purpose. The collapses of government contractor Carillion and retailer BHS have led to criticism of oversight provided by the sector.
The review is the third prong of an examination of the sector. It is expected to be launched in January after the Competition and Markets Authority (CMA) has published its own review into choice in the audit market set for the end of this year.
Audit’s Big Four – Deloitte, EY, KPMG and PricewaterhouseCoopers – have been accused of having a cartel-like position dominating the market for listed companies, leaving smaller accounting firms unable to get a look-in.
Shadow chancellor John McDonnell has already said that nothing short of a breakup of the Big Four will suffice.
Meanwhile, Sir John Kingman, chairman of Legal & General, is investigating the effectiveness of the audit regulator, the Financial Reporting Council (FRC). A joint parliamentary committee review recently labelled the FRC as “toothless”.
This latest review will scrutinise auditing itself, considering whether the current model of provides effective protections for stakeholders in companies, and whether the practice of offering “going concern” opinions, should be scrapped.
Lady Vadera is a former investment banker and minister in Gordon Brown’s government. She rose to become one of his closest advisers and played a key role in the bailout of Britain’s banks in 2008. She then became the first woman to chair a large British bank when Santander UK appointed her in 2014.
Mooted remedies for the Big Four include a cap on market share for firms, audits being conducted by joint-auditors as they are in France and restrictions on what other services firms can offer audit clients.
Atul Shah, professor of accounting and finance at Sheffield University, told City AM: “A complete overhaul of audit and accounting is urgently needed as it has failed miserably – and the Big Four have proven to be key to audit failure for a long time.”