It seems to be only getting worse for the big 4 accounting firms in the UK. Uk regulators are now holding a 16 week comment period to understand if they should limit the ability of the big 4 to audit the UK’s largest companies.
This is all taking place because of huge accounting scandals involving carillion and BHS. There are also other issues in Europe like Wirecard.
The big 4 will face a cap on the number of the FTSE 350 index that they would be allowed to audit. This is because a third of the audits of the FTSE 350 are in need of improvement.
The scope of this wouldn’t be limited to the FTSE 350 either. UK regulators would be going after the audits of private companies as well.
UK regulators hope to restore trust in business. Because of scandals, public trust is lost in business. People’s pensions are also at risk if companies aren’t audited correctly.
There would also be another regulator launched as a result of this. That regulator would be called the Audit, Reporting and Governance Authority. They would replace the FRC’s oversight of the Big 4 accounting firms.
UK companies and their executives would face penalties if they did not have sufficient cash reserves. UK executives could have their bonuses clawed back up to 2 years as a result of this as well.
Will this stop all the chaos going on in the UK? No, we’ve seen this before. This happened with Enron in the United States. The FBI and justice department destroyed Arthur Anderson and thousands of jobs along with it. Did that stop accounting fraud or fraud in general in the United States? No it did not. You can’t regulate ethics. Instead of penalties, they need to implement rewards for ethical behavior.
What is the point of having all this regulation? Who will be auditing these companies? The big 4 accounting firms or the regulators themselves.