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The ICAEW has reported that audit quality has increased since the 2018 collapse of Carillion, in response to fresh analysis that criticised audit firms for failing to issue warnings before three out of four major UK corporate collapses since 2010.
According to the industry body, the report also didn’t acknowledge the government’s decision to halt urgent reforms to audit and corporate governance, or the role of company directors in corporate failures.
The Audit Reform Lab, which is part of the University of Sheffield, didn’t “sufficiently” highlight the role of government, the ICAEW said, which unceremoniously withdrew proposed corporate governance reforms late last year.
The Audit Reform Lab’s research found that out of the Big Four auditors, EY performed worst – warning of going concern risks for just 20% of collapsed firms; PwC provided warnings in 23% of cases; Deloitte 36% and KPMG 38%.
Meanwhile, auditors outside the Big Four performed even worse – providing warnings for just 17% of collapsed firms.
While the FRC has increased its fines on firms for audit failures, the ICAEW said little more can be done unless the government acts on the reforms that are urgently needed to “hold company directors to account for corporate failures”.
ICAEW CEO Alan Vallance said: “The FRC’s audit quality reports show the proportion of good audits increasing over the inspection cycles from 2018 to now. This contrasts with the conclusion of researchers at Sheffield University that there is an ‘appearance of declining quality’.
“Carillion’s collapse in 2018 marked a watershed moment, and since then regulators, the audit profession and others have delivered substantial and significant improvements.”
