A coalition of campaigners has called for the “urgent” reform of the audit profession ahead of the publication of a government White Paper.
The group of civil society organisations and institutions including Greenpeace, IPPR, Spotlight on Corruption and Sheffield University academics argue that wide-reaching changes should be implemented “as soon as possible” to prevent repeated audit failure.
The group supports the separation of audit and consulting functions within professional service firms in order to reduce conflict of interest, as well as protect the interests of shareholders, staff, customers, pensioners, investors and society as a whole.
It also argues that auditors should face stricter penalties, including fines and debarment from public contracts, when they fail to do their job properly.
In addition, the campaigners stress that companies’ accounts must include information on climate change and that auditors should robustly review this information.
Carsten Jung, senior economist at the Institute for Public Policy Research said: “Audit firms should play a critical safeguarding role in our economy and society. We all rely on them to ensure businesses act truthfully and stick to rules. In the UK, almost all of the 300 biggest companies are audited by one of four dominant firms – a huge concentration of power.
“Moreover, the bulk of these firms’ revenues comes from their consultancy work, not their audits – risking dangerous conflicts of interest. When audit fails – as it does in one in three cases – it leads to job losses, millions wiped from pension pots, huge bills for taxpayers and a weakened economy.”
He added: “Only bold regulatory reforms can address the deep-rooted issues with the current system. We look forward to seeing the government’s White Paper and hope it will show that it is serious about fixing the audit landscape.”
Susan Hawley, executive director at Spotlight on Corruption said: “We should expect the highest standards from auditors – but time and again they have let us down. Just last year, EY failed to report billions of dollars’ worth of cash transactions including the smuggling of gold from Morocco.
“The High Court in London concluded that EY breached their duties of integrity, objectivity and professionalism. These sorts of failures have enabled kleptocrats, corrupt officials and fraudsters to get away with illegal behaviour at huge social cost, while the Big Four audit firms have consistently escaped any serious consequences. This White Paper must be the start of greater regulation of and accountability for the sector.”
Richard Murphy, a chartered accountant and director of the Corporate Accountability Network concluded: “It is good that the government recognises the need for audit reform. But the changes must be more than skin deep: they need to go to the heart of how audit is done and for whom.”