The Time to Act is Now

WHY THIS MATTERS TO EVERYONE

• Failures in the auditing industry affect everyone including:
  • British businesses
  • British citizens
  • Global citizens who invest in British businesses
  • Global citizens who work for British businesses
  • Everyone who is connected to someone who could be affected by a corporate defaults brought on by conflicts of interest and quality and reliability issues in audits.

AN EXAMPLE OF HOW THIS COULD AFFECT YOU

When Thomas Cook entered compulsory liquidation, 450,000 customers were affected internationally with 150,000 British citizens stranded around the world. Further, 22,000 jobs were affected worldwide[1]. Since then, the Financial Report Council (FRC) has opened an investigation into the two auditing firms (both "Big Four" auditing firms) due to conflicts of interest and questionable practices[2].

[1] https://www.bbc.com/news/business-49791249

[2] https://www.accountancyage.com/2019/12/19/frc-extends-thomas-cook-investigation-to-more-statements-audited-by-ey/

THE SITUATION

In 2018, Sir John Kingman led the Independent Review of the Financial Reporting Council (FRC) that showed the need for reform to the UK audit sector. UK businesses depend on a competitive, open and accessible audit sector. The protracted nature of COVID-19 combined with the economic impact likened to the post-war recession, could cause irrevocable harm to the audit sector’s future competitiveness, with concerns regarding the ability of second tier firms, such as Grant Thornton and Mazars, maintaining the pace and scale of investments required to compete against the Big Four.

COVID-19 has challenged every sector of British business, with financial and consumer impacts expected to take several years to recover. Consumers, investors, suppliers and regulators will be forced to place substantial reliance on the accuracy and independence of audit reporting for future decision-making. As Government schemes are bought to a close, we expect to witness a steep increase in corporate defaults, underpinning the critical importance of accurate, quality and unbiased audit reporting.

Against this backdrop, the inherent spread of conflicts of interest combined with recent patterns of material failings in the quality and reliability of audits conducted by the Big Four, is the urgency for acceleration in the Government’s commitment to sector-wide reform. It is paramount the Government acts now to push through on its commitments to structural and legal reforms of the audit sector, to further compliment the Government’s efforts to preserve the longer-term interests of the UK as a trusted place to do business.