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Sky said that the announcement from Whitehall is expected nearly two years after the consultation and that the Department for Business and Trade’s Insolvency Service will introduce measures that will allow both businesses and people to be sanctioned for misbehaviour.

Insolvency firms face being formally regulated for the first time as ministers seek to establish a new watchdog within the Insolvency Service, Sky News has reported.

The news comes after the collapse of BHS and Carillion drew attention to the conduct of company directors and auditors.

Following the collapse, a consultation was launched to create a new independent regulator in the insolvency service.

Sky said that the announcement from Whitehall is expected nearly two years after the consultation and that the Department for Business and Trade’s Insolvency Service will introduce measures that will allow both businesses and people to be sanctioned for misbehaviour.

An industry executive told Sky that the aim of the reforms is “to close a regulatory gap and bring insolvency firms in line with the rules governing providers of audit and legal services”.

So far, providers of insolvency services have been regulated by a quartet of recognised professional bodies (RPB), which include the Insolvency Practitioners Association and the Institute of Chartered Accountants in England and Wales (ICAEW).

However, the Insolvency Service issued a formal reprimand to the ICAEW for the first time in June for failing to supervise a person who was subject to professional limitations.

Sky News also stated that the scope of the new rules governing firms was unclear on Saturday (9 September), but a source added that the current quartet of RPBs would be responsible for implementing them.

The government was also planning to create a public register for all individuals and firms offering insolvency services, and establish “a system of compensation and redress amendments to the current arrangements for insolvency practitioners to hold security (bonding) to cover losses in the event of fraud or dishonesty”. It is unclear if these reforms would be included in the package.

Article from Accountancy Today

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

The proposed new rules come amid frustration in Washington that audit firms are not living up to their duty to protect investors from wrongdoing by their clients. 

Big Four accounting firms are fighting to block new rules in the US that would force them to take more responsibility for rooting out fraud at the companies they audit, the Financial Times has reported. 

To counteract these new rules, Deloitte, PwC, EY and KPMG are trying to sign up their clients to oppose the plan by telling them their fees will increase if the changes go through. 

According to the Financial Times, the firms have days to go before the end of a consultation period on the proposed new rules from the Public Company Accounting Oversight Board (PCAOB). 

The proposed new rules, which would widen auditors’ responsibility to scrutinise whether a company is complying with laws and regulations, comes amid frustration in Washington that audit firms are not living up to their duty to protect investors from wrongdoing by their clients. 

As a result, The Center for Audit Quality – a group that represents audit firms led by the Big Four – has asked corporate directors to sign on to a letter attacking the plan. 

The Financial Times said it understands the letter stated that “auditors are not lawyers and as a result the proposed amendments would expand the auditor’s role to include knowledge and expertise outside their core competencies. The proposal will substantially increase the cost of the audit without a commensurate benefit.”

The proposed rules have proven controversial even within the PCAOB, where they won support from only three of the five board members. The two other members, who have previously worked for the Big Four, both opposed the changes, with one calling them a “breathtaking expansion of the auditors’ responsibilities”.

Lynn Turner, a former chief accountant of the Securities and Exchange Commission who is now an adviser to the PCAOB, said existing standards provided too much “wriggle room” for auditors to avoid confrontation with management when they see potentially illegal behaviour.

Turner said: “The current standard doesn’t serve the capital markets in any way, shape, fashion or form. I’ve told the people at the PCAOB that this is a war and the war has begun. It’ll test those three board members and we will see if they’ve got a spine or not.”

Business lobby groups and the accounting firms are expected to put in comment letters opposing the new rules before a deadline on 7 August.

Writes Corina Duma in Accountancy Today