Wanted by U.K. Parliament: Auditors With Professional Skepticism

(Bloomberg) -- British auditors need to show more evidence they are challenging the management of the companies they cover, U.K. politicians concluded in a critique of the Big Four accounting firms’ approach to doing their job.

That was the recommendation made by Parliament’s business and industrial strategy committee as part of a wider review of U.K. auditors by the British government, financial and competition regulators.

“Auditors should make a presentation at the AGM to show how they have challenged management and exercised professional skepticism to underpin their audit opinion, and to raise any major issues,” reads the committee’s recommendation, according to the June 5th government paper. Donald Brydon, the chairman of the London Stock Exchange who’s been hired to lead the independent review, is now “seeking views and evidence on how auditors might better communicate to and engage with shareholders,” according to the government paper.

The Big Four accounting firms in April faced a renewed call from the U.K.’s Competition and Markets Authority to be broken up amid allegations of conflicts of interest and a failure to spot a series of high-profile corporate failures.

In the wake of the collapse last year of building contractor Carillion Plc, a committee of lawmakers in April made recommendations to cut down on the dominance of PricewaterhouseCoopers, Deloitte, EY and KPMG, which together control more than 90 percent of U.K. audits for large companies.

The Parliamentary Committee recommended the CMA at the very least implements the split of the audit and non-audit businesses of the Big Four. The government said it will be “consulting on the CMA’s recommendations,” stopping short of endorsing the suggestion.

To contact the reporter on this story: Hugo Miller in Geneva at hugomiller@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Christopher Elser, Peter Chapman

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