UK unveils overhaul of scandal-hit audit sector

Britain unveiled a radical overhaul of the nation's accountancy sector on Tuesday in a bid to fix "deep-seated problems" after a series of major scandals, regulators said.

The Competition and Markets Authority (CMA) watchdog, revealing the initial findings of an investigation, said choice is too limited in the auditing sector dominated by the so-called Big Four -- Deloitte, EY, KPMG and PwC.

It also took aim at the link between their auditing roles and the lucrative consulting services they also offer businesses, a potential source of conflict of interest that critics have long pointed out.

"The CMA is proposing legislation to: separate audit from consulting services; introduce measures to substantially increase the accountability of those chairing audit committees in firms, and impose a 'joint audit' regime giving firms outside the Big Four a role in auditing the UK's biggest companies," it said in a statement.

The Big Four have a long-established oligopoly to advise and monitor big business, experts say.

However, the industry has been thrown into the crosshairs of authorities by a series of major corporate collapses in Britain -- including retail giant BHS in 2016 and construction company Carillion in 2018.

"Companies choose their own auditors, and as a result we have seen too much evidence of them picking those with whom they have the best 'cultural fit' or 'chemistry' rather than those who offer the toughest scrutiny," added the CMA, which launched its probe in October.

"Choice is too limited, with the Big Four audit firms conducting 97 percent of the audits of the biggest companies.

"Auditors' focus on quality appears diluted by the fact that at least 75 percent of the revenue of the Big Four comes from other services like consulting." Major firms feel they need one of the Big Four on their side as investors usually want to see their labels when they scrutinise the quality of companies.

Yet ordinary people do not realise that they are impacted by ongoing problems in the sector, according to the CMA.

"Addressing the deep-seated problems in the audit market is now long overdue," said chairman Andrew Tyrie.

While most people will never read an auditor's opinion on a company's accounts, tens of millions of people depend on robust and high-quality audits, he said.

"If a company's books aren't properly examined, people's jobs, pensions or savings can be at risk," said Tyrie.

The regulator will now consult on its proposals and hopes to conclude its work "as soon as possible" in 2019.

He said if it turns out that the proposals are not far-reaching enough, the CMA will persist until the sector's problems are resolved.