The resignation of the UK’s city minister John Glen could cast doubt over the future of audit reform, the co-founder of Theta Global Advisors has warned.
Commenting on the news of the governmental resignations that led to the resignation of prime minister Boris Johnson, Chris Biggs said the departure of Glen days before he was due to unveil proposed reforms to reset a post-Brexit financial service industry are likely to alter the plans to reform the way corporate governance and audits are carried out.
This follows the collapses of major companies including Thomas Cook in 2019, BHS in 2016 and Carillion in 2018.
The large-scale collapses pushed the government to take action by creating a new watchdog – the Audit, Reporting and Governance Authority (ARGA), replacing the Financial Reporting Council.
Biggs said: “After three years of consultations, the resignations of key government figures are worrying as this may slow the pace of the crucial audit reform Britain needs, especially after seeing a number of scandals in which thousands of jobs were lost. The introduction of ARGA as an upgrade to the Financial Reporting Council is critical for it to perform its function as a watchdog for the Big Four.
“There are potential issues around this shake up, but that is no reason to shy away from much needed reform. Possible increased costs and time delays for firms outside of the Big Four performing particularly complex and demanding audits are in some ways to be expected because of shared audits.”
The government is hoping to break up the dominance of the Big Four by forcing companies listed on the FTSE 100 and FTSE 250 to assign part of its audits to smaller firms.
He added: “There have been three independent reviews so far and major failings are still happening with the Big Four’s current monopoly. The legislative reform has certainly re-energised the push, but we need to now see more follow through if the issues are to be solved effectively and for the long-term.
“Independence of the Big Four’s audit and consultancy services is crucial. We cannot risk jeopardising the independence of the audit because of lucrative consultancy services provided to the same client.”