Britain to shake up audit market after Carillion crash

By Huw Jones

LONDON (Reuters) -Britain set out long-awaited plans on Tuesday for a new accounting watchdog to shake up the audit market four years after the collapse of builder Carillion undermined investor trust in company balance sheets.

The government said it would propose draft legislation to rebuild trust in audit, company reporting and corporate governance by increasing choice in a market dominated by EY, KPMG, PwC and Deloitte, known as the "Big Four".

After Carillion, where 7,000 suppliers and contractors were hit, three government-backed reviews recommended reforms, including replacing the Financial Reporting Council accounting regulator with a more powerful Audit, Reporting and Governance Authority (ARGA).

A draft bill is issued for consultation before being formally introduced to parliament, meaning it is not yet clear when it will become law.

The government said the bill will include setting up ARGA, and increase competition through "managed shared audits" for the main listed companies.

For companies audited by one of the Big Four, a smaller "challenger" accountant such as Grant Thornton, BDO or Mazars would audit a minority portion of the company to build up experience in blue chip auditing.

The Institute of Directors said it was a relief the "long overdue" reform was not completely dropped.

The ICAEW, a professional accounting body, said the scope of change signalled a missed opportunity.

"There seems to be no chance that this Bill will pass in the forthcoming Parliamentary session, and very little prospect of it doing so in the one after that," ICAEW Chief Executive Michael Izza said.

In 2020, every company in the FTSE 100 and 91% of the FTSE 250 was audited by one of Big Four. The plan does not go as far as the mandatory joint auditors sought by Britain's competition watchdog.

"This will improve the quality and usefulness of audit; and boost resilience, competition, and choice in the audit market," the government said.

The bill will also give ARGA "effective powers to enforce director's financial reporting duties", meaning a version of the tough U.S. Sarbanes-Oxley Act is now on the table to make top company officials more directly accountable for information given to investors.

The new law would also give ARGA powers to regulate accountancy - currently done to some extent by private professional accounting bodies - and actuaries.

It will also reform rules for insolvency practitioners and strengthen corporate governance of firms going bust to tackle asset stripping.

(Reporting by Huw Jones; Editing by Kate Holton and Ed Osmond)