Stay informed with free updates
Simply sign up to the Accountancy myFT Digest — delivered directly to your inbox.
A UK regulator has strongly criticised audits by BDO, saying the work fell “significantly short” as it concluded that the mid-tier accounting firm was the worst performer among its peers during annual inspections.
The findings by the Financial Reporting Council highlight the challenge BDO faces as it tries to break the stranglehold of the Big Four firms — Deloitte, EY, KPMG and PwC — on listed companies’ audits while ensuring its work complies with the watchdog’s requirements.
The FRC said only 50 per cent of the BDO audits that it inspected in its latest annual review required “no more than limited improvement”, which was a better performance than last year. Then, just 38 per cent of BDO’s audits were ranked as satisfactory.
But the regulator said the most recent BDO audit work it scrutinised fell “significantly short of expectations”, adding: “BDO must urgently and robustly reassess how to improve its audit quality.”
The FRC said BDO will remain under close supervision, adding: “We expect BDO to not be complacent and ensure change happens at pace.”
In the regulator’s annual review of leading accounting firms’ audit assignments, the regulator scrutinised a total of 104 pieces of work completed by the Big Four plus BDO and Forvis Mazars.
The FRC has been trying to improve the quality of audits of large UK companies after accounting firms failed to raise red flags ahead of high-profile corporate failures — such as construction company Carillion and bakery chain Patisserie Valerie.
BDO has been the most successful of the mid-tier accounting firms in winning more audit work from so-called public interest entities, which include listed companies, banks and insurers. It now audits the third largest number of such entities across all peers.
The FRC has promised reforms to help mid-tier firms compete with the Big Four, but the regulator’s efforts have been hampered by the government dropping some key reforms that would shake up the audit market.
Meanwhile the FRC said 90 per cent of audits completed by Forvis Mazars did not need more than “limited improvement”, compared with 44 per cent last year.
The better performance was “encouraging” but not yet a “trend”, the FRC added, after criticising Forvis Mazars’ audit work last year.
“There continues to be a gap between the larger and other firms in the [public interest entity] market,” said Sarah Rapson, executive director of supervision at the FRC.
The FRC said the Big Four firms displayed “steady and consistent improvement” in audit quality during its inspections.
Credit: Source link
