UK auditors failed to warn on 75% of significant bankruptcies
UK auditors failed to warn on 75% of significant bankruptcies.
Britain’s audit sector failed to offer warnings about three-quarters of listed UK firms’ bankruptcies during the last decade, according to a research released Monday, blaming conflicts of interest and lax oversight.
The decision by Audio Reform Lab, a think tank based at Sheffield University in northern England, comes as the UK government’s sector revamp appears to be deadlocked.
According to Audio Reform Lab, auditors failed to ring the alarm prior to 75 percent of the nation’s top 250 bankruptcies between 2010 and 2022.
According to the data, the nation’s four largest accounting firms – Deloitte, EY, KPMG, and PwC – received 96% of audit fees for the UK’s top 350 listed corporations in 2022.
Between 2020 and 2022, average partner compensation increased by 31% to £872,500, while Deloitte partners’ average pay exceeded £1.0 million, according to the report.
“The UK audit sector is plagued by poor standards, a toothless regulator, conflicts of interests, and weak sanctions for malpractice,” said Professor Adam Leaver, Audio Reform Lab director and report author.
“Auditors are failing to demonstrate independent judgment or professional scepticism, both of which are essential components of their role. Reform has been promised and is long overdue.”
According to the research, the Big Four faced malpractice fines that were “too small to materially affect partner pay or change behaviour” between 2015 and 2022.
According to the report, the four largest accounting firms received regulatory fines totaling 0.16 percent of revenue and 0.85 percent of profits.
The UK auditing sector drew criticism for failing to uncover or prevent big bankruptcies that resulted in massive job losses, particularly at retail chain BHS in 2016, construction firm Carillion in 2018, and tour operator Thomas Cook in 2019.
In 2021, the British government released a comprehensive range of recommendations to shake up the audit business and restore trust.
However, those plans were diluted in 2022 and appear to have been postponed permanently.
“These commitments have been watered down and subsequently dropped from legislative programmes,” the think tank stated on Monday.
“The Audit Reform Lab is calling on the next government to enact far-reaching reforms – including the legal separation of audit from non-audit services and establishing a new regulator with enhanced enforcement and sanction powers.”
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