U.K. financial watchdogs have stepped up their oversight of the accounting and auditing industry amid a string of corporate accounting scandals, collapses and questions over the dominance of the Big Four auditing firms. The U.K. Financial Reporting Council (FRC) announced late last week that it plans to heighten the number of probes it conducts in the industry, according to The Wall Street Journal. The watchdog also said it will hire more staff, and increase its budget.
KPMG, PwC, Deloitte and EY head the U.K. auditing and accounting sector, leading to concerns over dominance and the ability for companies to maintain impartiality in their auditing operations. The Competition and Markets Authority had previously recommended that the four firms break up, and split their auditing and accounting operations.
Earlier this month, KPMG announced it would not be commencing such a split, and would rather implement a new executive committee to enhance the company’s internal performance and risk controls.
While the FRC is expanding its oversight, some have called for the creation of an entirely new regulator to address potential shortcomings in the auditing sector. U.K. Business Secretary Greg Clark had previously recommended that the FRC be merged into a new watchdog: the Audit, Reporting and Governance Authority.
In a statement, the FRC’s CEO Stephen Haddrill said the regulator’s newly announced plans aim to address many of the industry’s concerns of a lack of enforcement and authority.
“The FRC’s plan sets out a clear pathway [toward] the establishment of an enhanced authority, with stronger powers and greater resources, as quickly and effectively as possible,” he said.
The regulator plans to focus on audit quality, particularly in the financial services, construction and retail spaces, which have recently seen several accounting scandals and collapses. The FRC has already increased the number of audit quality reviews from 126 in 2014 to 160 in fiscal year 2018. Reports said the FRC also intends to heighten its scrutiny of auditor governance and leadership, risk mitigation processes, control and overall behavior.