Major companies could escape “double check” audit

Owl has just one question – why?

“Britain’s competition watchdog is drawing up plans to exclude some major companies from a controversial new rule that would require many businesses to appoint joint auditors.

Sky News has learnt that the Competition and Markets Authority (CMA) has been weighing whether to offer an exemption as part of its heavily scrutinised inquiry into the audit market.

The CMA is expected to publish its final report this week, but has been stung by a backlash from corporate Britain to proposals outlined in December that would force FTSE-100 companies to employ two audit firms.

Sources close to the regulator’s probe say it has floated the idea of offering a “carve-out” from the joint audit rule for “the biggest, most complex companies”.

That could apply to banks such as HSBC Holdings and oil companies including BP and Royal Dutch Shell.

One insider said a crude market capitalisation threshold could apply, with companies worth more than a certain threshold allowed to continue with a single auditor.

The workability of this idea was dismissed by corporate chiefs, however, given the potential impact on companies crossing such a threshold in either direction or on multiple occasions.

It was unclear this weekend whether the exemption would be included in the CMA’s final report, although one source close to the government said the watchdog had appeared to be determined to press ahead with it several weeks ago.

The CMA is also expected to push for a more robust separation of the big four’s audit and non-audit practices than it floated in its preliminary report four months ago.

Its inquiry was launched at the behest of the Department for Business, Energy and Industrial Strategy (BEIS) in the wake of anger about the role of auditors in major corporate scandals at BHS and Carillion.

Accountants have also faced probes into their work on the books of companies such as BT Group, the Co-operative Bank, Ted Baker and Patisserie Holdings. …

https://news.sky.com/story/watchdog-may-exempt-biggest-firms-from-joint-audit-rule-11693962

EDDC external auditors being investigated for their work with failed EDDC HQ builder

“Britain’s audit watchdog said on Thursday it was investigating the audits by Grant Thornton UK of some financial statements of Interserve, the outsourcer that was taken over by lenders last month.

Scrutiny of Britain’s “Big Four” accounting firms has been spurred in the past year by a handful of investigations into listed company’s financial reporting as well as the collapse of Carillion and Poundworld, which led to an inquest in auditing industry standards.

One of the British government’s biggest contractors, and a peer of collapsed infrastructure and outsourcing group Carillion, Interserve was placed in administration in mid-March after shareholders rejected a rescue plan to deal with its debts.

The Financial Reporting Council said it was probing the audit of the company’s financial statements for 2015, 2016 and 2017.

Grant Thornton UK did not immediately respond to a request for comment outside of work hours.

The FRC is already investigating the accounting firm’s audit of cafe chain owner Patisserie’s financial statements for 2015-2017 after the discovery of a black hole in its finances led to the breakup and sale of the group.

The run of bad news has led to calls by lawmakers for the breakup of Britain’s “Big Four” accounting firms Ernst and Young, KPMG, Deloitte and PricewaterhouseCoopers.”

https://uk.reuters.com/article/uk-britain-interserve-investigation/uk-watchdog-investigating-grant-thornton-interserve-audit-idUKKCN1RN0IN

Auditors should not be consultants [ *particularly to the council they audit!]

* after the big disgraced Tory councillor Graham Brown debacle, EDDC’s internal auditors (South West Audit Partnership) were given a consultancy contract to investigate his influence on planning decisions while running his own planning consultancy in East Devon. The report was wishy-washy to say the least, as reported by EDW here:

https://eastdevonwatch.org/2013/11/11/council-anti-corruption-report-slated-by-campaigners/

“Audit firms should be banned from carrying out consultancy services, according to a report of MPs.

The Business, Energy and Industrial Strategy Committee this week released a report into the future of audit, launched after recent accounting scandals at firms including Carillion and Patisserie Valerie.

Among a raft of conclusions, it said that audit firms currently face conflict of interests if they also carry out advisory services, leading to lower quality auditing.

Committee chair Rachel Reeves said: “For the big firms, audits seem too often to be the route to milking the cash-cow of consultancy business.

“The client relationship, and the conflicts of interest which abound, undermine the professional scepticism needed to deliver reliable, high-quality audits.

“Splitting audit from non-audit business would be a big step to boosting the culture of challenge needed to deliver high-quality audits.”

The report said that non-audit profits currently subsidise the pay of audit partners within firms.

“We do not think that this is a healthy state of affairs,” it said.

“Audit partners must not be or feel indebted to non-audit partners.

“That frame of mind can only lead to audit partners being mindful of the interests of the non-audit practice, when we expect them to serve the interests of the firm, its shareholders and the wider public.”

http://www.room151.co.uk/treasury/council-auditors-should-not-be-allowed-to-provide-advisory-services/

“Local bodies poor at securing value for money, says Public Accounts Committee “

“An increasing number of local public bodies are demonstrating “significant weaknesses” in securing value for money, MPs have warned.

Auditors found more than 20% of local authorities, NHS bodies and police and fire authorities in England did not have proper arrangements in place to achieve value for money in 2017-18, the Public Accounts Committee has said.

Central government’s measures to stop this were “limited”, the watchdog added.

NHS bodies, like Clinical Commissioning Groups and hospital trusts, were found to be the worst public bodies for assuring taxpayers’ money is spent effectively, according to the PAC report out today.

Qualified audit opinions – which signify weaknesses in an organisations accounts – were issued to 38% of NHS bodies in the last financial year, compared to 29% in 2015-16, it said.

In 2015-16 18% of non-NHS local bodies were given a qualified audit opinion, compared to 22% in 2017-18.

There were 495 local authorities, local police and local fire bodies subject to external audit, with responsibility for £54bn of net revenue spending in 2017-18. Another 442 local NHS bodies received funding from the Department of Health and Social Care of approximately £100bn.

Only 5% of local bodies had implemented changes to address weaknesses highlighted by auditors last year, according to information obtained by the National Audit Office.

The PAC noted that some bodies were failing to put enough information in the public domain, including reports from external auditors and suggested that central government should “make clear their expectations” for information that should be made public helping citizens hold bodies to account.

“Local bodies should also be taking auditors’ concerns seriously and addressing them promptly, but there appear to be few consequences for those who do not,” the report said.

The committee said that central departments were not doing enough to make sure that local bodies take “prompt corrective action”.

Meg Hillier, chair of the PAC, said: “Taxpayers must be assured that their money is well-spent but in too many cases local bodies cannot properly safeguard value.

“Particularly concerning are NHS bodies such as CCGs and hospital trusts: last year almost two in five did not have adequate arrangements.

“It is vital that local bodies take auditors’ concerns seriously, address them swiftly and ensure meaningful information on performance is made accessible to the public.”

DHSC and the Ministry of Housing, Communities and Local Government have been contacted for comment.”

https://www.publicfinance.co.uk/news/2019/03/local-bodies-poor-securing-value-money-says-pac

“Spending watchdog consults on new Code of Audit Practice for local auditors”

“The National Audit Office has launched a consultation on the development of a new Code of Audit Practice, which sets out what local auditors of relevant local public bodies are required to do to fulfil their statutory responsibilities under the Local Audit and Accountability Act 2014.

The 2014 Act requires that the Code be reviewed, and revisions considered at least every five years. The NAO said the current Code came into force on 1 April 2015, and its maximum five-year lifespan means it now needs to be reviewed and a new Code laid in Parliament in time for it to come in to force no later than 1 April 2020. …

The consultation document which can be viewed here:

https://www.nao.org.uk/code-audit-practice/wp-content/uploads/sites/29/2019/03/Local-audit-in-England-Code-of-Audit-Practice-Consultation.pdf

supports Stage 1 of the process. …”

https://www.localgovernmentlawyer.co.uk/governance/396-governance-news/40054-spending-watchdog-consults-on-new-code-of-audit-practice-for-local-auditors

Retiring National Audit Office Chief: ministers with no qualifications and “inappropriate bravado when it comes to spending taxpayers’ money”

“The relationship between ministers, accounting officers and civil servants is currently not working, the outgoing auditor general of UK’s spending watchdog has said in his last speech in the role.

Some ministers “see themselves more or less as chief executive officers but without the qualifications”, National Audit Office head Amyas Morse told an event on accountability at the Institute for Government think-tank’s offices this morning.

The comptroller said this meant ministers sometimes made decisions prioritising a project “close to their hearts” – when they should be held accountable but are not – which “has led to the abandonment of good practice”, he said.

The problem rests with the “interaction between ministers, accounting officers and civil servants,” Morse said. “That really needs to be addressed. I don’t think the relationship is where it ought to be at the moment.”

He said he did not see ministers having a say in the appointment of accounting officers as producing a “healthy result”.

Accounting officers can only ensure value for money for the public purse “if they are in a position where they are sufficiently influential to assert the importance of public value”, he added, suggesting they currently do not have this influence.

Morse said the civil service had become much more professional over the past few years, partly through initiatives like the Infrastructure and Projects Authority. The authority is a centre of expertise for delivering infrastructure and major projects.

But he added civil servants, who he noted often feel they need to defend ministerial decisions, required “greater clarity” on how they were was supposed to work alongside those decisions.

Morse talked of the importance of transparency in public life and the “outbreak of secrecy” in government over Brexit.

This secrecy had “slowed down the ability of the civil service to react and may have helped create an element of distrust more widely in parliament,” Morse said.

He suggested there was currently “inappropriate bravado when it comes to spending taxpayers’ money”. He highlighted Crossrail and the probation service’s contracting as examples of where government had recently overspent. “I didn’t have to go far into my in-tray to find those,” he said.

Morse will hand over the reins as auditor general and comptroller to CIPFA fellow Gareth Davies on 1 June.”

https://www.publicfinance.co.uk/news/2019/03/outgoing-nao-chief-questions-ministerial-accountability-over-public-spending1

New audit watchdog will watch audit watchdogs!

Owl says: Alas, it seems the smaller audit companies will remain unaudited!

“The accounting watchdog will be shut down and replaced by a stronger regulator after a government-backed review deemed it a “hangover from a different era”.

Greg Clark, 51, the business secretary, said the government would move ahead with the recommendations of a review of the Financial Reporting Council last year by Sir John Kingman, 49, the chairman of Legal & General.

Sir John said it was “seriously inappropriate” that the FRC, formed in 1990, was funded by a voluntary industry levy and criticised it for hiring executives from the alumni networks of the Big Four firms. Consultation on its 48 recommendations will run until June.

The FRC will be dismantled as part of an effort to restore trust in the audit market after a string of accounting scandals and the failure of large businesses such as Carillion, the outsourcer, and BHS, the department stores chain.

It will be replaced by a new, more powerful watchdog called the Audit, Reporting and Governance Authority that will be accountable to parliament. Arga will be able to issue harsher penalties against companies and auditors after corporate failures and will be able to intervene directly in company accounts. It will be run by a new board, recruitment of which will begin immediately.

Arga will regulate the large firms of Deloitte, PWC, EY and KPMG, as well as supervising their audit work. It will have new powers to force companies and their directors to explain why a company failed and to publish reports on their conduct.

“The new body will build on our status as a great place to do business and will form an important part of strengthened public trust in businesses and the regulations that govern them,” Mr Clark said. He commissioned the Kingman review after the FRC was accused of being too close to the largest firms, too slow to investigate allegations of misconduct and not tough enough in punishing audit failings. …”

Source: Times (pay wall)