Britain’s Financial Reporting Council has announced that it would start examining the suitability of people appointed to senior posts in Big Four accounting firms Deloitte, EY, KPMG and PwC, as well as in Grant Thornton and BDO.
The appointments to be vetted include those to key leadership and governance roles such as independent non-executives, heads of audit and ethics partners.
The FRC does not have the power to veto appointments. Instead, says Melanie McLaren, FRC executive director of audit and actuarial regulation, “we will discuss with firms how well candidates for key leadership and governance roles . . . meet our expectations in terms of experience, skills and attributes.”
The new measure is part of the FRC’s drive to enhance its monitoring of the UK’s six largest audit firms. The goal, it says, is “to avoid systematic deficiencies within firms’ networks, disruption in the provision of statutory audit services and instability in the financial sector.”
Public auditing regulators in Asia have not indicated that they are considering a similar initiative, although rules and regulations in the West tend to percolate to the region in due course. Financial centers such as Hong Kong and Singapore are especially wary of being seen by investors as less stringent in governance and more prone to disruption than London.
The UK government is reviewing the competence of the FRC amid calls for the agency to be disbanded in the wake of high-profile corporate failures like that of outsourcing company Carillion. The company’s external auditors had given Carillion a clean bill of health shortly before it collapsed.