UK watchdog wants to be able to cap Big Four’s FTSE 350 audit clients

The UK’s supreme accounting regulator has called on the minister to give him the power to limit the number of large listed companies that a single company can audit in order to promote competition with the big four accounting firms. paddy field.

However, Sir John Thompson, CEO of the Financial Reporting Council, questioned whether the government would pass legislation to increase the accountability of directors for the accuracy of financial statements. Cost worry.

The government will announce an updated proposal later this year for the planned plan. revision After a 16-week consultation that ended in July, we will discuss the audit and governance of large UK companies.

Long-haul reforms were designed to undermine the responsibilities of the audit industry and administrators following a series of bookkeeping. scandal In companies such as Carillion and BHS.

Discussions included a plan to force FTSE 350 companies using one of the four main auditors (Deloitte, EY, KPMG or PwC) to appoint a mid-size company to audit some of their subsidiaries. I did. The proposal included a reserve right to impose a market share cap on the Big Four if the plan failed to improve competition.

But during the Big Four talks was refused While sharing the audits, there are also small rivals I’m a little interested..

Instead, some companies have said they want a market share cap. This approach was also widely endorsed by the chairman of the audit committee, Thompson said at an event hosted by the Association of Chartered Accountants of the UK and Wales on Monday.

He said “there is no easy solution” to the hegemony of the Big Four and called on the minister to empower him to impose market share caps and shared audits. These are “used appropriately depending on the business involved”. “

Thompson’s comments show that regulators’ previous stance has softened. “The worst result is [the reforms] No one can find a compromise, so they die and are killed with stones, ”said one who knew the position of the FRC.

According to Thompson, the response to the consultation provided “significant support” for changes in areas such as oversight of corporate audit committees.

But Thompson said the overhaul included a rule requiring directors to approve the company’s internal control over financial reporting, which was seen as a key part of the reform proposal.

He said the minister faced an “important political decision” over whether to proceed with the introduction of the so-called UK sock requirement, a version of the Survey-Oxley regulations enforced by US authorities. in 2002 after the Enron scandal. Declared.

Mr Thompson said there had been “significant returns” on the cost of the new measures, the most important of which was the British Socks Act. He said any decision must be “very carefully” weighed against the increasing costs and benefits.

He added that regulators could act if the government did not introduce legislation in this area through the corporate governance code of listed companies. However, companies are not required to meet the standards as long as they explain why.

Hywel Ball, UK chairman of EY, said the introduction of Sarbanes-Oxley in the United States showed that “the increase in value far exceeds the cost of additional regulation.”

The government has not taken a decision and said it will “respond to talks soon”.