British companies should adopt US-style reporting, says EY
Directors of finance should take individual responsibility if their companies make errors in financial reports, according to one of the UK’s biggest audit firms.
EY, one of the Big Four audit firms, said top bosses and directors must personally confirm the integrity of their companies’ submitted accounts.
Britain should adopt the US system of corporate responsibility, EY’s UK chairman Steve Varley (above) told around 700 partners in an email sent last Friday. In an email obtained by Sky News, Varley summarised the accountancy giant’s response to a probe by the competition watchdog into the UK audit market following several major scandals.
EY is the first of the Big Four, which collectively audit 97 per cent of the FTSE 350, to have its response to the CMA revealed.
Varley wrote: “Management and directors (including audit committees) are primarily responsible for the accuracy of corporate information, upon which shareholders and stakeholders rely. They must play a greater role in that regard and should be held accountable through a framework of enhanced regulatory oversight.”
Known as Sarbanes-Oxely after the US senators behind its introduction in the wake of the Enron scandal, the corporate accounting regime holds CFOs and CEOs personally liable for errors in audited accounts.
The summary of EY’s response to the CMA does not refer to a potential cap on the market share of the big four auditors. In its response, the Institute of Chartered Accountants for England and Wales (ICAEW) has suggested a cap of 60 per cent for the Big Four. Mid-level accounting firm Mazars, which would like to vie for FTSE 350 business, has called for the cap to be set higher at 80 per cent.
Meanwhile, Stephen Haddrill, boss of sector regulator the Financial Reporting Council (FRC), has announced that he will step down at the end of 2019. The FRC was described as “toothless” in a parliamentary report earlier this year. The watchdog faces an existential threat from a review of its role and remit by Sir John Kingman, chairman of Legal & General.