‘Muppets and miscreants’ don’t speak for auditors, FRC boss says
October 23, 2024
The head of the audit watchdog wants to restore the profession’s reputation after a series of crises
The reputation of auditors has been tarnished by “muppets and miscreants”, according to the boss of the sector’s watchdog, as he looks to boost the reputation of the industry.
Richard Moriarty, CEO of the Financial Reporting Council, said a “small number” of bad actors shouldn’t tar the sector, which has made strides forward after a host of audit scandals ranging from BHS and Carillion, to Patisserie Valerie and Wirecard.
Moriarty said there was “an understandable deficit” in public trust “following that dark period”.
“Some of it, of course, is justified because auditors were found wanting,” he added.
“Since then, particularly in the largest firms, quality of audit has gone up.”
Auditors have been slammed in recent years for missing clear red flags in businesses that went on to collapse, costing investors millions. EY audited payments firm Wirecard before a black hole was discovered in its accounts. KPMG gave construction giant Carillion a clean bill of health before it too collapsed.
The FRC dished out a record £48m in fines in the 12 months ending in March this year. Following the Carillion scandal the then government put forward plans to replace the FRC with a new regulator with beefed up powers, namely the Auditing, Reporting and Governance Authority.
Labour pledged legislation to create Arga in July, but a formal timeframe has yet to be published.
Moriarty welcomed the move to a new regulator, but said all auditors shouldn’t be lumped in with the sector’s bad apples. While mid-tier firms continue to struggle, the FRC has recently seen improvements in audit quality among the so-called Big Four quartet of largest firms. Audit quality for the FTSE 350 has also improved, up from 81% to 87% year-on-year, according to a July report.
“You can’t tar an entire profession by the actions of a small number of muppets and miscreants. Most auditors, like doctors, like solicitors, they go to work to do a professional job, do a good job and are actually proud to be held to high standards. And just like when you see wrongdoing or serious failure in the legal profession or the medical profession, you don’t automatically think that all doctors and all solicitors are bad. The same must be true with auditors as well,” he said.
“But it is important they are held to high standards and it is really important that the regulation is independent rather than being allowed to regulate themselves.”
[Financial News]
