Britain unveils shake-up of its scandal-hit accounting sector

BACKPOOL, UK: Volunteers sort food at Blackpool Food Bank in Blackpool, north west England. In Britain’s most deprived areas, such as seaside resort Blackpool in northwest England, the coronavirus pandemic has worsened the financial plight of its most vulnerable resident. – AFP

LONDON: Britain unveiled yesterday a drastic overhaul of its troubled accounting sector, with plans to break the dominance of the so-called Big Four accountancy giants. The long-awaited shake-up comes amid mounting outcry over the Big Four-comprising Deloitte, EY, KPMG and PwC-following a series of scandals in recent years.

“Major new reforms to the UK’s audit regime will aim to safeguard British jobs, avoid company failures and reinforce the UK’s reputation as a world-leading destination for investment,” the Department for Business, Energy and Industrial Strategy (BEIS) said as it launched an industry-wide consultation on its proposals. The government wants to replace accounting regulator the Financial Reporting Council with a tough new body that has legal powers to raise quality and standards at both listed and large unlisted companies.

The Audit, Reporting and Governance Authority (ARGA) watchdog will also have the power to split the audit and non-audit functions of accountancy firms, in order to avoid conflicts of interest. Large companies would be required to use a smaller “challenger” accountancy firm to conduct a “meaningful portion” of their annual audit, the statement added.

And the Big Four could also face a cap on their share of audits of Britain’s top 350 listed companies if competition does not improve. The overhaul follows a string of headline-grabbing company bankruptcies that sparked huge job losses and left the taxpayer dealing with the fallout. Notable corporate insolvencies included department store BHS in 2016, construction firm Carillion in 2018, and tour operator Thomas Cook in 2019. “When big companies go bust, the effects are felt far and wide with job losses and the British taxpayer picking up the tab,” said business minister Kwasi Kwarteng.

“It’s clear from large-scale collapses like Thomas Cook, Carillion and BHS that Britain’s audit regime needs to be modernized with a package of sensible, proportionate reforms.” The sector has been blighted in recent years by a series of scandals, including EY-linked activities at disgraced German electronic payments group Wirecard. EY faced fierce criticism for its role in the 2020 downfall of Wirecard-whose books it had been checking since 2009.

Former fintech darling Wirecard collapsed in June 2020 after it was forced to admit that 1.9 billion euros ($2.2 billion) missing from its accounts did not exist. Deloitte was meanwhile fined £15 million last year for serious misconduct after UK regulators probed its audit of British software firm Autonomy ahead of a disastrous takeover by US tech giant Hewlett-Packard in 2011.

BoE move

The Bank of England was expected to maintain the status quo on monetary policy as it mulls Britain’s post-pandemic recovery alongside rising inflation fears that have rattled the bond market. Economists predict the British central bank will again hold its key interest rate, which was slashed to just 0.1 percent one year ago following the eruption of the deadly COVID-19 crisis. The bank is also set to keep its quantitative easing (QE) stimulus, which aims to boost lending, at £895 billion ($1.2 billion, 1.0 billion euros).

Bond markets have been shaken in recent weeks by fears that the global stimulus-fuelled recovery will fan inflation and force interest rates hikes sooner than otherwise expected. “While some observers were speculating about the potential for negative interest rates in the UK at the start of the year, the BOE’s bigger concern lately has been rising interest rates and fears of accelerating inflation as the economy gradually opens up in the coming months,” warned analyst Matthew Weller.

Commentators also remain mindful of a possible inflationary surge, as many Britons seek to splurge savings hoarded during lockdown. Britain suffered one of the world’s worst coronavirus outbreaks with more than 125,000 deaths. The pandemic sparked a 10-percent slump of UK economic output last year-the worst annual performance in more than three centuries-as Brexit also weighed.

However, the nation has now given nearly 25 million people a first dose of a COVID vaccine, as it targets a phased exit from current lockdown restrictions-and a return to normality. Bank of England Governor Andrew Bailey forecast Monday that economic activity will return to its pre-COVID level in late 2021. The BoE had previously forecast early 2022 for such a recovery. “That’s good news. But let’s be realistic-it’s not more than getting back to where we were pre-COVID,” Bailey cautioned.

The UK economy slumped 2.9 percent in January from December, after the imposition of England’s third lockdown. Britain’s EU goods exports meanwhile suffered a record 41-percent collapse in January, the first month since its final Brexit divorce. “With all the uncertainty between Brexit, the ongoing pandemic, and unprecedented fiscal/monetary stimulus, risk-averse central bankers may be more likely to stick to the status quo until the next move is clearer,” noted Weller. – AFP

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