External Audit to undergo huge changes in the UK after major audit failures and FRC recommendations
Not surprisingly - after the Kingman Report on the replacement of the FRC, the Parliamentary Joint Enquiry into Carillion and a raft of other corporate failures - the latest recommendations look to make sweeping changes to the external audit scope, reporting, and industry structure. It's about time, as those in the financial departments of companies around the world all have inside stories to tell of poor or inadequate audits and undue reliance or influence on auditors, who in their own mind owe very little duty to shareholders to detect, let alone investigate, fraud due to the audit scope and pricing limitations.
In what is too little, too late the FRC openly criticised KPMG for an "unacceptable deterioration in audit quality" in 2018 after investigations and a Tribunal hearing, and in recent days announced an audit practice assessment. In January 2019, the firm itself suspended the lead partner for the Carillion audit and three others over issues related to documentation provided to the FRC. The FRC will now be reviewing all audits on Carillion dating back to 2014. Despite the fact that KPMG self-reported the issues, the sheer scale of the failure and transgressions by a range of parties will surely lead to punitive actions.
The damning report on the behaviour of the Board, management and auditors of Carillion is almost a fantastical corporate story. The 2nd Joint Report is available here.
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