Blacklist audit firms in UK for failure to root out fraud, urges Pirc
19 Apr 2021

Several large audit firms will be blacklisted in this year’s annual shareholder meetings by Pirc, an advisory service that believes they are not doing enough to tackle corporate fraud.

Pirc is recommending that investors vote against the reappointment of PwC, KPMG, EY and Grant Thornton at any British company where they are the auditor. It has adopted the position — which is likely to cause a stir during the annual meetings season and to be unpopular with companies — because it believes the firms have not made strong enough undertakings to improve processes to detect fraud.

In contrast, Deloitte, BDO and Mazars have committed to address the situation, the service has said.

Pirc was created in 1986 by pension funds and has grown to become one of Europe’s largest independent corporate governance and shareholder advisory consultancies.

It is trying to force accounting firms and international authorities to address an “expectations gap” between existing professional standards for auditors over corporate fraud and what the public and courts expect.

The government published plans last month to overhaul the audit industry to restore confidence in companies’ accounts. Among the proposals by the Department for Business, Energy and Industrial Strategy are greater reporting obligations on auditors and company directors to help to prevent fraud.

At present auditors are expected to adhere to the international principle that certified information is “useful for users”. That “side-steps the crucial duties auditors have”, including to the companies themselves, Pirc said. It also argues that the description falls short of public and legal expectations.

Last year, the Court of Appeal ruled against Grant Thornton’s attempt to overturn an order to pay damages to AssetCo. The High Court had said that Grant Thornton had displayed a “flagrant breach of professional standards” in its audit of the business, which supplied fire engines and equipment to the London Fire Brigade. AssetCo’s shares slumped and it almost collapsed as a result of a fraud by executives in 2011.

Pirc also cites the case of Barings, where Deloitte was found to have been negligent in failing to discover losses at the merchant bank. In that case, “the issue of negligence didn’t merely involve the signing of the public accounts by the audit partner with misstated amounts in, but earlier at the time more junior members of staff missed the fraud when reviewing a bank reconciliation (a private and not public document),” Pirc said.

By Katherine Griffiths, The Times, 19 April 2021

Read more at The Times

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