Major overhaul needed to fix Big Four, expert says
A leading academic has called on the government to speed up its audit reforms, after arguing a serious overhaul was needed to prevent an “appalling” situation from getting worse.
Talk to AM City Accounting expert Professor Atul Shah said: ‘The record of the UK audit industry has been appalling over the past two decades and it is getting worse.
Highlighting major scandals in the audit industry, including the collapse of cafe chain Patisserie Valerie and construction giant Carillion, the professor said serious reforms were needed to prevent such scandals from happening. reproduce in the future.
Shah added that reforming the audit industry in the UK could lead to a long-term investment boom, as he said such reforms would increase transparency and boost investor confidence in UK businesses.
The trade expert said: “The functioning of any efficient financial market requires good quality accountability and management, and independent auditing is a very important part of this governance process.”
Break the Big Four!
In diagnosing the audit industry’s problems, Shah said there were significant “conflicts of interest” in the UK’s biggest audit firms.
“They are commercial companies with a profit motive and therefore not independent in how they audit their customers,” Shah said.
He added that firms in the Big Four that sell services other than auditing and consulting compromise their objectivity when it comes to auditing their clients.
“Essentially, the big four accounting firms are private oligopolies,” Shah said. “There are significant conflicts of interest between the services provided.”
The comments come after the U.S. Securities and Exchange Commission (SEC) launched a Big Four conflict-of-interest investigation this week.
According to Shah, the only way to solve the problem is to break up the Big Four, separating their auditing activities.
The professor has also called for serious reforms to the UK’s audit watchdog as he claims regulators have been ‘captured’.
“We had a very flawed regulatory system,” Shah said.
Shah noted that the board of the UK’s Financial Reporting Council (FRC) is made up of former Big Four executives, while others have been barred from leadership positions.
“The trend is towards what I would call lowest common denominator regulation,” Shah said. “The public rhetoric is that we are a tough country, but the reality is that any cowboy is welcome here.”