LONDON (Reuters) - Accounting firms are still not always challenging properly what they are told by companies whose books they check, Britain’s accounting watchdog said on Friday.
The Financial Reporting Council (FRC) said in its annual Developments in Audit report that it would focus in the coming year on improving the speed and effectiveness of enforcement.
In the last financial year it doled out 12.5 million pounds in sanctions against auditors.
“In our monitoring of audit quality we have yet to see overwhelming evidence of improvement in all sections of the market or the consistency of performance we want between different firms,” said Melanie McLaren, the FRC’s executive director for audit and actuarial regulation.
Whilst there is evidence of greater professional scepticism, this is also the area where the FRC finds the greatest number of issues, the watchdog said.
The FRC said there was evidence of improving audit quality and a commitment to continuous improvement in a sector dominated by the “Big Four”, namely PwC, KPMG, EY and Deloitte.
There have been sweeping reforms of the audit sector since the global financial crisis a decade ago when banks that had been given a clean bill of health by auditors had to be rescued by taxpayers.
The rules require all listed companies in the European Union to switch auditors at least every 20 years, ending a practise when some firms had the same accounting firm for many decades.
Rotation is meant to increase scepticism and avoid over familiarity, but it has largely been a merry-go-round among the Big Four as they have the global networks needed to check multinational firms.
The share of the Big Four firms in auditing Britain’s 350 biggest listed companies has actually risen to 97 percent from 95 percent over the past six years, the FRC said.
The FRC said shareholders found that rotation brings fresh challenge and new perspectives.
“The audit market and confidence in it in the UK is changing significantly, with the impact of audit tendering and rotation requirements seeing greater competition on quality between the biggest firms,” the FRC said.
Reporting by Huw Jones, editing by Pritha Sarkar