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The UK accounting regulator is under pressure to disclose the full findings of its routine inspections of major corporate audits to protect shareholders and other stakeholders who could lose if financial statements are misleading.
Campaigns for greater corporate accountability said in a letter to the Financial Reporting Board that the number of audits required significant improvement was “worrying” and that the names of companies affected by a poor quality investigation should be disclosed.
The FRC announced in July that 29 percent Of the 103 audits it reviewed, it required improvement or significant improvement, a level that he said was ‘unacceptably high’.
The watchdog publishes quality scores for each of the seven largest audit firms, but it does not provide a breakdown of the companies’ accounts that have not been properly tested.
Failure to list the companies affected by substandard audits and details of the problems identified will not undermine confidence in all financial statements signed by accounting firms, the campaigners said in a letter to Sir Jon Thompson. , CEO of the FRC, said.
“This lack of transparency therefore affects confidence in audits across the board,” the signatories said in the letter, which included Spotlight on Corruption and Greenpeace UK.
Audit failures at the Patisserie Valerie cafeteria “emphasize the need for greater transparency” around quality controls, they added.
The accounting firm Grant Thornton was a fine of £ 2.3 million imposed last week due to a ‘serious lack of competence’ in his audits of Patisserie Valerie, which applied for administration in 2019 after a suspected fraud was uncovered.
The Patisserie Valerie audit was reviewed as part of the FRC’s annual inspections months before the administration of the business, but the results were never published, leaving investors and suppliers in the dark as to whether the watchdog solved problems has.
“We believe that individual audits that do not meet acceptable standards should be identified, with sufficient justification for the conclusion for this conclusion,” wrote the campaigners, which also include representatives of the Project On Government Oversight, the Corporate Accountability Network. . ClientEarth and the Global Legal Action Network.
‘If this is not done, the shareholders and other stakeholders of the company who have had a flawed audit service will not know that the audit on which they rely does not meet the required standard.
The FRC is currently prevented by law from naming companies whose audits are not up to date unless it ensures their consent.
The campaigners asked the regulator if he sought permission from the company to be identified and to explain how he liaises with the audit committees of businesses to make sure they detect problems.
The white paper of the government on audit reform, published in March, contains a proposal to enable the accounting watchdog to publish the findings of its audit quality tests without the consent of companies or their accounting firms.
However, the regulator is free to decide whether he wants to publish his full findings or just a summary.
‘We appeal to the FRC and its successor regulator [the Audit, Reporting and Governance Authority]’, to put in place a mechanism to ensure that issues of commercial confidentiality and legal privilege do not lead to an unacceptable lack of transparency regarding defective audits,’ the campaigners said.
The FRC said it “supports proposals to publish the findings of the review of audit issues, although such publication would require legislative changes”.