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The FRC’s report, which was published today, showed that the overall quality of audits has improved as 74% of firms were categorised as good or requiring limited improvement

The ICAEW has renewed calls to establish ARGA as a new regulator whilst welcoming the FRC’s latest annual Tier 1 audit firm inspection results, which showed that overall audit quality has risen.

The FRC’s report, which was published yesterday, showed that the overall quality of audits has improved as 74% of firms were categorised as good or requiring limited improvements.

The Big Four firms all improved with 94% of Deloitte 76% of EY audits, 89% of KPMG audits  and 76% of PwC audits up to standard.

Audit quality for the FTSE 350 has also improved, up from 81% to 87% year on year.

The FRC warned of a widened gap in audit quality between the Big Four and the other so-called Tier one firms, however. The ICAEW also highlighted this, underscoring the “challenges” faced by firms outside of the Big Four who are looking to take on PIE audits. 

Alan Vallance, ICAEW CEO, said: “While it is encouraging to see that overall audit quality has gone up, these results demonstrate the challenges firms outside the Big Four have faced while building a presence in the PIE audit market. 

“The FRC has set out plans to boost performance where it is lacking and the report acknowledges the important role smaller firms play in creating a resilient audit market, as well as the potential issues arising from de-risking audit portfolios.” 

He added: “The FRC’s role in improving audit quality and competition must also not be overlooked, including through its scalebox initiative, and we urge it to renew efforts to support firms seeking to take on PIE audits.  

“The regulator has also highlighted the Spring Report, which found that performing a good audit of challenging companies requires action by the company and the auditors.

In our view it is essential that the new regulator ARGA is established and given wider powers to take effective enforcement action as needed.” 

Writes Heather Sandlin in Accountancy Today

Advancetrack’s Accounting Talent Index survey found three-quarters of the firms reported partner hours had increased, with 42% of cases showing an increase of more than 20%, or an extra day per week

Almost 90% of worldwide professionals have stated that increased working hours caused by an “existential” skills shortage are “significantly” harming their mental health, work life balance and stress levels, according to Advancetrack’s Accounting Talent Index survey.

The report from the global accountancy outsourcing specialists revealed that the impact is hitting accountants at all levels – from staff to partners, with young employees in particular “voting with their feet”.

It said it estimates that around 300,000 accountants exited the profession between 2019 and 2022 in the US and this trend is mirrored across the UK and Australia.

The Accounting Talent Index also revealed that almost half of firms (45%) worldwide are being “severely” or “significantly” affected by the skills shortage.

The index, which surveyed firms across continents, estimated the figure to scale to hundreds of thousands of firms, with 74% reporting the problem to be “significantly worse than three years ago”.

It also showed the perception of accounting as a “demanding profession with unappealing long hours and high stress is a significant deterrent, compounded by an evolving job market where other professions may offer more attractive benefits, work-life balance, and perceived career fulfilment”.

Additionally, for 25- to 29-year-olds, the median salary for accountants dropped by around 6% between 2016 and 2022. Conversely, professions such as data analysts (13%), management analysts (7%) and marketing analysts (6%) all saw significant increases.

Three-quarters of the firms reported partner hours had increased, with 42% of cases showing an increase of more than 20%, or an extra day per week.

Advancetrack’s call for action comes after ICAEW charity Caba recently published a similar analysis of mental health in the accounting profession across the UK. That report said more than half (56%) of accountants are suffering from stress and burnout, with workload, long hours and complexity cited as the main reasons.

Vipul Sheth, MD of Advancetrack, said: “The Accounting Talent Index shows we face a perfect storm: It seems it’s never been harder to be a partner of an accountancy firm – and it’s never been less appealing to join the profession.

“The root cause seems to be the ever-widening chasm between demand and supply of talent in major economies like the U.K., U.S. and Australia. What we need now is a concerted effort to stop the rot, with the sector’s biggest firms leading by example. We’ve developed five action points we’ll be urging organisations across the sector to embrace, regardless of their size or geography.”

Cynera Rodricks writes in Accountancy Today

Audit reform looks like it could finally take a step forward after being included in the King’s Speech.

A long-waited commitment to audit and corporate governance reforms has been included in the King’s Speech.

More than 35 bills and draft bills are being introduced in a bid to “enable economic growth”, says Labour, with the focus being on accelerating the building of houses and infrastructure, improving transport, creating more jobs and securing clean, green energy.

New laws are also being designed to hand power back to local leaders.

Different story

At the last King’s Speech in November, the omission of audit reform was met with disappointment from across the accounting profession. However, it’s a different story today.

“Stability will be the cornerstone of my government’s economic policy and every decision will be consistent with its fiscal rules,” said King Charles among his first points. “It will legislate to ensure that all significant tax and spending changes are subject to an independent assessment by the Office for Budget Responsibility (Budget Responsibility Bill).

“Bills will be brought forward to strengthen audit and corporate governance, alongside pension investment (Draft Audit Reform and Corporate Governance Bill, Pension Schemes Bill).”

Crucial part of the reforms

Alan Vallance, Institute of Chartered Accountants in England and Wales (ICAEW) chief executive, expressed delight that more than six years on from the collapse of Carillion, the legislation has been backed as a priority.

“Reliable, trusted reporting by companies is fundamental to investor confidence, which in turn is key to economic growth and stability,” he said. “This long-awaited reform will not only reduce the risk of disorderly business failure, but will contribute to the transition to net zero.

“Establishing the new statutory regulator – the Audit, Reporting and Governance Authority (ARGA) – and providing it with powers to take effective enforcement action against directors of UK public interest entities, is a crucial part of these reforms.

“We look forward to seeing a package of measures which, taken together, will make Britain the best place in the world to invest and to start, run and grow a business.”

Severely overdue

Gavin Hayes, head of policy and public affairs at the Chartered Institute of Internal Auditors, added: “We are delighted that the government has committed to a draft Audit Reform and Corporate Governance Bill in the King’s Speech.

“Ensuring the audit regulator has the legal powers it needs to do its job effectively is vital to restore trust in the audit and corporate governance system which underpins our economic stability.”

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Mike Suffield, director of policy and insight at the Association of Chartered Certified Accountants (ACCA), said audit reform has been “severely overdue in the UK, yet repeated delays have sidelined it, despite the importance of it in promoting the UK as a great place to do business”.

“ACCA has long called for this implementation, so to see it included in the King’s Speech as one of the first points of the speech is a huge step forward.

“Legislation will place the planned new regulator, the ARGA, on a statutory footing and will set out clear expectations and accountability for boards, management and auditors.

“The shift of the Financial Reporting Council to ARGA as a clear independent watchdog will strengthen the oversight of audit quality so that audit firms can be held properly to account, introducing changes that have been needed since the collapse of Carillion in 2018.”

by 

Matthew Ord

Accountancy Daily(Edited)

The possibility of swift progress on audit reform will be keenly watched as the Department for Business has already posted an update to guidance

Audit reform is now under the remit of the new secretary of state for business, Jonathan Reynolds, supported by ministers Douglas Alexander and Sarah Jones.

As government websites are being updated to reflect the new Labour government, a minor update to the guidance on audit and corporate governance reform on gov.uk has been posted, with the government stating that ‘reference to draft regulations amended as the government withdrew these on 16 October 2023’.

This information referred to the previous Conservative government’s decision to not include audit reform in the November 2023 King’s Speech.

Although long promised audit reform never got as far as draft legislation in the last parliament, with a July 2023 announcement referencing ‘a factual overview of draft regulations that the government laid in parliament on 19 July 2023’, it had been hoped that the legislation would make the statute books.

However, part of ambitious plans for audit reform were dropped as part of the Conservative government’s ambition to ‘remove additional reporting requirements’.

Draft regulations published last July would have added additional corporate and company reporting requirements to large UK listed and private companies, including an annual resilience statement, distributable profits figure, material fraud statement and triennial audit and assurance policy statement.

At the time the business minister Kevin Hollinrake indicated that reform would go ahead, stating: ‘The government remains committed to wider audit and corporate governance reform, including establishing a new Audit, Reporting and Governance Authority to replace the existing Financial Reporting Council. We will bring forward legislation to deliver these reforms when parliamentary time allows.’

Audit reform has been on the cards for nearly a decade following a string of audit disasters as failed companies such as Carilion, BHS, and scandals related to the audits of a host of companies including Rolls-Royce and Connaught Housing.

In 2018, there were three critical reviews of the audit market conducted by the Competition & Markets Authority (CMA), Sir John Kingman Review and Sir Donald Brydon’s Independent Review of the Quality and Effectiveness of Audit.

As early as 2012, the House of Lords Economic Affairs Committee produced a detailed report into audit market calling for radical reform of the audit sector.

ICAEW has called on the new Labour government to ‘commit to taking forward audit and corporate governance reform and legislate to clear the local audit backlog in England in its first 100 days in office’.

‘As a priority, the new government should enact the long-delayed reforms to the UK’s audit and corporate governance regime, including establishing the new statutory regulator ARGA and giving it powers to take effective enforcement action against directors of UK public interest entities.

‘Taking early action in this area will reduce the risk of unexpected business failure and deliver on existing commitments to reinforce the UK as a trusted destination for investment.’

The Department for Business & Trade has been contacted for comment.

Writes Sara White in Accountancy Daily