March 2, 2017 / 3:29 PM / 3 years ago

UK watchdog finds auditors' quality controls lacking

A company logo is pictured outside a Tesco supermarket in Altrincham northern England, April 16, 2016. REUTERS/Phil Noble/File Photo

LONDON (Reuters) - About one third of audits of London-listed companies sampled by Britain’s accounting regulator lack rigour and need improvements, the watchdog said in a report published on Thursday.

The report came after recent accounting scandals at British blue-chips BT (BT.L) and Tesco (TSCO.L), which wiped billions of pounds off share prices.

The Financial Reporting Council (FRC), publishing the findings of its latest review of control processes, said all auditors had procedures and dedicated resources for ensuring audit quality and some went beyond those required by standards.

“However, the number of audits that required more than just limited improvements shows the firms’ audit quality procedures were not sufficiently robust,” it said.

The “Big Four” global accounting giants Deloitte, PwC, KPMG and Ernst & Young, which offer services to companies ranging from auditing to consultancy, operate in Britain with Thornton, BDO and RSM Tenon among their smaller rivals.

The FRC, which said it had reviewed six of the largest accounting firms and selected 26 recent audits of London-listed companies, did not name auditors and none was referred to its enforcement division.

However, it urged auditors to do more to engage specialists in their audits and improve basic quality control procedures, adding that strong leadership and “the right culture” would lead to faster improvements and greater quality consistency.

Its next “thematic review” of 2017/2018, part of the watchdog’s audit inspection regime, will examine the effectiveness of audit firms’ governance and culture.

Reporting by Kirstin Ridley; Editing by Susan Fenton

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