Sloppy UK auditors hurt global business – The Wall Street Journal

DUBLIN – The UK has seen numerous auditing scandals over the last few years. In cases ranging from Carillion to BHS, auditors have been shown to be asleep at the wheel, ignoring or overlooking key warning signs of the very financial troubles they are meant to search out. Weak auditing standards and ineffectual auditors have plainly taken a toll of UK businesses. But their impact extends beyond Britain's borders. Many global companies – including some of the world's giants – operate in the UK and are audited locally. If British auditors underperform and ignore problems, these global businesses are at risk of financial problems. Given the global nature of business, underperforming British auditors pose a threat to investors worldwide. It's clearly time for authorities in the UK to take the issue seriously and impose much stricter rules. Right now, it seems that many British audits are not worth the money they cost. – Felicity Duncan.Why Fixing Sloppy U.K. Auditors Matters for Wall Street.By Paul J. Davies.Audit scandals come and go, but audit regulation stays much the same. The U.K. is having another crack at stamping out poor practices. Once again, it looks like rule makers should go further..___STEADY_PAYWALL___.Globally, the last major overhaul was in the U.S. more than a decade ago, when lawmakers stopped the Big Four accounting firms—PwC, Deloitte, EY and KPMG—from offering consulting services to clients they audited..The U.K., which doesn't require this split, has endured a string of accounting failures. Auditors can be punished for shoddy work, but the deterrents are often weak. The failure of retailer BHS landed PwC with a fine of just $13 million and a lengthy ban for one partner. In the U.S. fines can be bigger: PwC was this summer ordered to pay the Federal Deposit Insurance Corp $625 million for its work on a failed lender, Colonial Bank..Poor U.K. auditing standards are a problem for U.S. investors, too, because the U.K. arms of the Big Four audit the British divisions of U.S. companies such as Amazon and Citigroup..In a report published Tuesday, the U.K. antitrust regulator criticized a lack of competition and the way auditors are appointed on the basis of "cultural fit" or price. The Big Four audit 97% of the biggest U.K. companies and make at least 75% of U.K. revenue from nonaudit work..The regulator wants a structural split between audit and consulting, with separate executives and accounts. But it hasn't proposed a full breakup, or even a ban on firms doing both types of work for the same client. Investors should see the U.S. approach as a minimum standard..It also proposed more scrutiny of how auditors are appointed and of the directors that make the decision. This is a good start, but only if individuals can be legally held to account, as senior managers in financial services firms now can be in the U.K..A second government-backed report took aim at the industry's self-regulatory body, the Financial Reporting Council. It called for its replacement with an independent regulator funded by mandatory rather than voluntary contributions. Again, this should be a minimum..Such changes will likely mean higher audit costs. But if auditors can't be trusted to do a thorough job of policing company accounts, then the minimal costs that companies currently pay are wasted money and there is no point to them at all..Write to Paul J. Davies at paul.davies@wsj.com

Sloppy UK auditors hurt global business – The Wall Street Journal

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