By Huw Jones
LONDON, March 5 (Reuters) - Radical reform of auditing in Britain could start this year via voluntary changes by the "Big Four" accounting firms that check the books of nearly all big companies, the country's accounting watchdog said.
The high profile collapse of building company Carillion and retailer BHS led to three reviews of the audit process in Britain and these proposed ways to boost competition and improve audit quality.
But the slow pace of change has prompted accusations of government foot-dragging.
"I don't agree with some views that there may be some drift," Jon Thompson, chief executive of the Financial Reporting Council (FRC) which regulates auditors, told Reuters.
"I remain firmly of the view that the government will do it. I am really confident that audit reform is coming."
The two most radical reforms could be implemented voluntarily from this year in some form if ministers decide to back non-legislative alternatives drawn up by the FRC, Thompson said.
Thompson ran Britain's tax collection authority before taking up the FRC reins last year to overhaul what lawmakers called a "toothless" watchdog.
He said the government had asked for alternatives to "operational separation" of the accounting firms audit and advisory businesses as well as the introduction of "joint audits" without the need for legislation.
A blueprint for the Big Four - EY, KPMG, Deloitte and PwC - to ringfence their UK audit operations from their advisory and consulting work is set to be finalised next week for implementing later this year, Thompson said.
The aim is to stop audit being subsidised by the more lucrative advisory work.
Thompson has been negotiating 20 principles with the Big Four, under which a ringfenced audit division have would its own CEO, non-executive chair and remuneration policy.
Talks next week aim to produce a "mature proposition" the Big Four can sign up to. "That can go to business ministers to give us an indication about whether they then want us to implement that," Thompson said.
"It could go ahead this year. We get the fairly clear view from the Big Four that they would proceed to be able to implement most of the principles in a reasonably timely manner."
Britain's Competition and Markets Authority has proposed "joint audits" for most of the top 350 listed companies in Britain, requiring them to hire two accounting firms with both legally liable for the audit.
Thompson said the FRC board had rejected joint audits and was proposing a non-legislative alternative known as "managed shared audits" that would need ministerial approval.
Typically, this would mean a Big Four firm as lead auditor taking legal responsibility and doing most of the audit, with a non-Big Four "challenger" like BDO, Grant Thornton or Mazars auditing 20-25% of the company, Thompson said.
More than 150 companies support for this approach as it would expand audit capacity at smaller accounting firms.
"We think it could be done relatively quickly and it does not require legislation. It has some features that ministers might find attractive," Thompson said.
"We have a handful of companies who are interested in piloting this, so we are in conversations with them to see if it is something that can be taken forward."
In terms of legislation, the government has so far only said it will legislate to replace the FRC with a more powerful Auditing, Reporting and Governance Authority that Thompson will head.
He and the FRC's new chair Simon Dingemans met with Britain's new business minister Alok Sharma last week. Thompson expects the government to launch a public consultation in May on what it wants to see implemented from the three reviews and how.
Thompson does not expect the FRC to be legally reconstituted into ARGA until 2022. (Reporting by Huw Jones. Editing by Jane Merriman)