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Time to 'jack up' scrutiny of Big Four auditors, watchdog's chair designate says

01/25/2022 | 09:12am EDT
Jan du Plessis, the Chairman of Rio Tinto, attends the mining company's AGM at the QEII centre in central London

LONDON (Reuters) -Britain's accounting watchdog was in a "pretty poor state" of governance and it was time "jack up" scrutiny of auditors to underpin competition and avoid more corporate collapses, its chair designate Jan du Plessis said on Tuesday.

The Financial Reporting Council (FRC) has been repeatedly criticised by lawmakers in the past for failing to crack down on poor auditing after collapses at builder Carillion, retailer BHS and cafe chain Patisserie Valerie.

The watchdog is already making changes to make it more powerful and is imposing much bigger fines on audit firms.

But its last permanent chair, Simon Dingemans, resigned in May 2020 after less than a year in the job to join a private equity company.

This left the FRC with a caretaker chair and a board short of several non-executive directors, though more are set to be appointed.

Britain's business ministry has proposed du Plessis to chair the FRC as it "morphs" into the new Audit, Reporting and Governance Authority (ARGA).

"The governance situation at the FRC today is in a pretty poor state," du Plessis told an appointment hearing held by parliament's business committee.

"It's really really not a way to run the regulator that should be setting the tone for the whole of British business."

He said FRC CEO Jon Thompson has made a real effort to recruit good staff but it was not good enough yet.

Du Plessis said a previous role at mining group Rio Tinto, where he had to deal with what he said was the company's "existential crisis", gave him the right experience to better equip the FRC within two-to-three months to take decisions.

After three government-backed reviews, the business ministry is due to set out reforms to improve standards and competition in the UK audit market dominated by PwC, EY, KPMG and Deloitte, known as the Big Four.

Du Plessis, South African born and a chartered accountant by training, said he backed shared audits, which allow smaller accountants to team up with a Big Four firm to get more blue chip company experience and increase competition over time.

He also said creating more competition in the audit business was a global challenge which Britain could not realistically solve without the Europe Union and the United States, but Britain could take steps to improve audit quality.

"Through the FRC or through ARGA we can really jack up the game of the audit profession of the Big Four," he said.

(Reporting by Huw Jones; Editing by Alex Richardson and Jane Merriman)

By Huw Jones

© Reuters 2022
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