New UK Business Secretary vows to target Big Four audit reform

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Kwasi Kwarteng, the new UK business secretary, has pledged to prioritize reforming the UK audit market, signaling a resumption of delayed efforts to shake up the ‘Big Four’ of accounting firms in the months to come. come.

According to business department officials and industry figures, Kwarteng – who took office on Friday – made it clear that audit reform was “one of his initial priorities.”

This contrasts with his predecessor Alok Sharma, who wanted to delay the long-awaited overhaul of the accounting market due to the Covid-19 crisis.

In recent weeks, government officials had polled business executives about delaying its response to a series of consultations at the UK’s largest accounting firms, which have been accused of failing to detect the fraud in large-scale business collapses, especially in Germany, Wirecard and the UK. Patisserie Valérie.

However, Kwarteng made it clear to officials on Monday that he was determined to push the reforms forward. “He’s back on track,” an industry figure told FT.

The new minister’s leadership comes after the Institute of Chartered Accountants of England and Wales said on Monday that the government should make audit reform an “urgent priority”.

Government-backed reports in the audit market have recommended a series of sweeping reforms to the way the Big Four accounting firms – PwC, Deloitte, EY and KPMG – are able to conduct their business.

Donald Brydon, the former chairman of the London Stock Exchange, who produced one of the sector reports, expressed concerns in 2019 about the quality and effectiveness of audits.

Sir Donald recommended changes in the law regarding the way auditors report to the public, renewed attention to providing assurance to users of accounts, strengthened standards for auditors and a commitment to inform and verify.

But the government still has not consulted on its findings more than a year after its handover, blaming the delay on ministerial changes and the coronavirus crisis.

In July, Sir Donald called for the acceleration of reforms, saying “we must not wait until there is a market failure”. He recently called on the government to introduce much-needed reforms in the wake of the Wirecard scandal, in which a Big Four accounting firm failed to uncover a fraud of 1.9 billion euros.

Brydon’s recommendations came after former Treasury Mandarin John Kingman produced a damning review of regulation in the sector in 2018, while the Markets and Competition Authority called for new legislation to end to the dominance of the Big Four accounting firms in a separate investigation that reported in 2019.

Mr Kingman had previously complained about slow progress in implementing his main recommendation to create a new regulatory body called the Audit, Reporting and Governance Authority to replace the Financial Reporting Council.

The Ministry of Business, Energy and Industrial Strategy said: “Audit reform was a priority for the former Secretary of State, and will continue to be under the current Secretary of State. . The government has accepted the findings of three independent reviews of corporate audit and reporting and has committed to act on their recommendations. We will respond in due course with full proposals for audit reform. ”

Mr Sharma – who left the business department to focus on chairing next year’s COP26 climate talks – had been receptive to warnings from industry that it was not the right time to launch an in-depth reform of the sector given the continued impact of Covid -19 on British businesses.

Many companies are struggling to be certain about the future of their businesses given the latest lockdown restrictions, and are wondering when the vaccine rollout can restore normal business conditions.

Mr Kwarteng, a former financial analyst who studied at Eton and Cambridge, was busy during his early days in office, immediately calling a meeting with representatives of the Big Five groups of companies on Monday. At the meeting, he outlined his priorities for the coming year and called on businesses to work with the government to boost economic growth.

Those on the call said it had been very encouraging to forge closer ties with business, saying he would be the “voice of business” within the cabinet.

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