LONDON (Reuters) - Auditors are being blamed too much when a company collapses rather than actions taken by company directors, the head of an inquiry into Britain’s audit sector said on Friday.
The collapse of construction company Carillion and retailer BHS has fueled calls from Britain’s parliament for a shakeup of the audit market to spot problems earlier and avoid thousands of employees losing their jobs.
Britain’s accounting regulator this week began investigating EY’s audit of travel company Thomas Cook, which collapsed last month.
Donald Brydon, former London Stock Exchange chairman, has been asked by Britain’s business ministry to look at how to improve the quality and effectiveness of the audit market.
Brydon said it was not auditors that cause companies to fail, but the actions of directors.
“And I am a little troubled by the current mood that reaches for a shotgun aimed at auditors every time there is a corporate problem,” he told an audience at the ICAEW, a professional accounting body.
“I am mindful that audit needs to be an attractive profession that attracts the brightest and best who can have confidence that good professional work will not be misdescribed at moments of stress,” Brydon said.
Brydon will make recommendations by the end of the year on what can be done about the gap between what investors want from an audit and what accountants can deliver.
Brydon said 2,500 pages of submissions to his review were strongly of the view that change is needed, though he stressed that he would not be “redesigning Western capitalism”.
There are frustrations with what people see as the currently “narrow, backward-looking and increasingly rules-obsessed approach to audit” and wanted more forward-looking aspects of a company covered as well.
“I do believe that in seeking to improve the impact and quality of audit, we must look not just to auditors, but to audit committees, boards and managements too,” Brydon said.
The government has yet to say to what extent it will implement two other reviews in the past year that recommended creating a more powerful regulator, and requiring big companies to hire two auditors and separate their consulting and audit operations.
Many of the recommendations need legislation at a time when parliament is consumed with Britain’s departure from the European Union.
Reporting by Huw Jones; Editing by Susan Fenton