Devastating audit failure report sparks fears for another Carillion

A damning corporate audit report will reveal significant flaws after scandals wiped out shareholders and taxpayers foot the bill

A damning corporate audit report will reveal significant flaws after corporate scandals that wiped out thousands of shareholders and left taxpayers foot the bill.

The bleak review — which the accounting watchdog could publish this week — comes after the spectacular demise of Greensill Capital, which counted David Cameron as an advisor until it filed for filing in March.

The Mail on Sunday can reveal that the Financial Reporting Council report will find that nearly a third of corporate audits examined have failed the quality test or fallen woefully short.

Dark days: Financial Reporting Council report finds nearly a third of corporate audits surveyed failed quality test or failed miserably

The shortcomings will raise concerns that auditors are not scrutinizing business leaders or studying their accounts, leaving companies more vulnerable to collapse or fraud.

The report comes as Business Secretary Kwasi Kwarteng is pushing for a major corporate governance overhaul to protect jobs and shareholders.

A series of corporate scandals have devastated the UK economy over the past decade, including the demise of BHS, which cost thousands of jobs and left a black hole in the company’s pension fund. The accountant, PwC, came under fire for failing to notice the warning signs.

But senior politicians are concerned that the problem is still widespread. The collapse of Greensill Capital has led to an investigation into its accountant, Saffery Champness.

The FRC is also pushing for a joint £15 million fine against KPM++++G for alleged misconduct in the sale of bed firm Silentnight to private equity. The sale kept Silentnight’s pension pot in the Pension Protection Fund, the government-backed lifeboat.

The FRC is still investigating the collapse of Carillion, which went bankrupt in January 2018.

And the demise of bakery chain Patisserie Valerie in 2019 after the discovery of a suspected £40 million accounting fraud put the spotlight on its accountant, Grant Thornton.

The FRC searched a widespread sample of audits from the UK’s largest accounting firms – PwC, EY, KPMG and Deloitte – as well as smaller firms BDO, Grant Thornton and RSM.

It is expected to show a slight improvement over last year in some areas, but it is clear that the watchdog will still view the deficiencies as ‘unacceptable’. ++++

Last year, companies were criticized for failing to challenge corporate management over their numbers and their ability to continue to operate as viable companies.

The report will boost Kwarteng’s call for corporate reform, which he outlined earlier this year, following assessments of the audit industry by city grandmasters, including Sir John Kingman and Sir Donald Brydon.

Kwarteng outlined proposals to break the dominance of the four major audit firms.

He also plans to create a new regulatory body, giving it more powers to split accountancy firms to eliminate conflicts of interest.

Directors of large companies can also receive fines or suspensions for fraud or major accounting errors.

Kwarteng told the MoS, “These proposals are very important for small shareholders, and even our pension pots, so that people can get a good idea of ​​the health of the company they are investing in.”

He added: “The collapse of household names such as Thomas Cook, Arcadia and Carillion, and the fact that a third of the audits inspected by FTSE350 companies were not in order last year, all expose the stark reality that the current system does not work. .’