The FRC has overseen a major uptick in audit enforcement activity recently, with the regulator issuing fines of £33.3m in 2022, a 77% increase from the previous year.
The string of high-profile audit failures in recent years have been the catalyst for significant industry reform, but the profession is at risk of appearing ‘unattractive’ as a result, according to Nicola Scarr, audit partner at Haines Watts.
In May 2022, the UK government announced it would revamp the country’s audit regime by implementing a new regulatory body, increasing the responsibility of large corporations, and diluting the monopoly of the industry’s Big Four firms.
Significant corporate collapses such as Carillion in 2018 and Patisserie Valerie in 2021, were key catalysts for the overhaul. KPMG, the auditing firm responsible for the Carillion audit, faced a £1.3 billion lawsuit for purported audit negligence in the beginning of 2023.
Scarr says: “It is important to understand and share when things go wrong, but the headlines can be a tough read. I always review the detailed reports to appreciate what has happened and take forward any learning, and I know we can all improve by doing that.
“Restoring trust in the profession with audit reform is welcome; the challenge for us is our clients are typically locally-owned SMEs but the revision of standards applies to entities of all sizes.”
This is echoed by Ian Graham, partner at Moore Kingston Smith, who says while it is not necessarily deterring people from entering the profession, it may prompt individuals to exit the industry.
“The continued relentless negative publicity and pronouncements around audit are without any doubt putting people off wanting to continue their career and potentially put themselves in that position.”
As part of the Carillion scandal, Pratik Paw, a former junior accountant at KPMG, managed to avoid a significant penalty and suspension for his involvement in the mishaps, receiving a “severe reprimand” instead.
The developments, such as revised quality management standards, are welcomed by Haines Watts. The firm claims that it encourages enhancements to internal communication and self-reflection, extending even to its trainee staff. This fostering has increased open dialogues among team members at every tier, Scarr added.
“We always strive for the best quality for our clients, but we are aware that we operate in an ever-evolving industry and processes, standards and markets in general are constantly changing.
“We debrief at the end of an audit with both our team and clients to see where we can improve and add value across the entire audit process. This helps foster a culture of continuous improvement, and welcoming feedback, at all levels.”
Writes Greg Noble in Accountancy Age