March 24, 2021

UK Audit Reform: Proposal Aims to Reduce Influence of Big 4 Audit Firms

A few weeks ago, I blogged about the Center for Audit Quality and AICPA’s roadmap to help auditors provide ESG data assurance services to companies. So, while Big 4 audit firms potentially ramp up ESG data assurance service offerings, over the UK there was big news last week when the government proposed to breakup the dominance of the Big 4. The proposal comes in response to large company collapses, such as Carillion and Thomas Cook, and aims to restore confidence in businesses.

This BBC story says there’s a 16-week consultation period to consider the proposal, which would require large companies to engage smaller audit firms to conduct part of their annual audits.  Among other things, audit firms would be required to make their audits more rigorous, and they could be capped in terms of the number of FTSE 350 companies each firm could audit. The latest proposal follows last year’s attempt by the FRC, the UK audit regulator, to shakeup the accounting industry by separating audit functions from other operations, which this FT article says the accounting firms supported.

Still not all are optimistic the latest proposal will result in meaningful change. For one observation on past attempts, along with commentary on this most recent proposal, check out Francine McKenna’s take in her entry on The Dig titled “UK audit reform proposals: Full of sound and fury but likely to amount to nothing.”

Audit Committee Guide & Quick Poll: Disclosure Committee Meeting Attendance

If you’re looking for an updated audit committee resource, check out the recently released KPMG Audit Committee Guide.  It’s 61 pages and among other things, provides information about the committee’s role in overseeing financial reporting, external and internal auditors and risk. In the section about disclosure controls and procedures, one item I found interesting was that it said some audit committee chairs occasionally attend disclosure committee meetings to see how the committee operates and to support its initiatives.  For unscientific benchmarking about this practice, participate in our anonymous poll:

survey services

Sustainability Commitments: Energy-Producing States Preparing to Hit Back

Back in January when Liz blogged about Larry Fink’s letter to CEOs, she noted that in the BlackRock’s companion letter to clients, the asset manager said it would be implementing a “heightened-scrutiny model” in active portfolios, including potential divestments. Since then, we’ve read reports of financial services firms making commitments about achieving net-zero GHG emissions from financing activities. Earlier this week, Robeco released survey results that said investor divestment from carbon-intensive assets will rise sharply in the next five years. Although stakeholders are happy to see these actions, oil-rich states are preparing to deliver a new set of headaches for companies and investors.

A blog entry from Pew says that lawmakers in Alaska, North Dakota and Texas are introducing legislation that would force states to stop investing in companies that use sustainable strategies to make financial decisions and to sever ties with asset managers, banks and insurers that are doing the same. This excerpt from a Texas Tribune article explains proposed legislation in that state:

If passed, the legislation would require state entities — including state pension funds and Texas’ massive K-12 school endowment — to divest from companies that refuse to invest in or do business with fossil fuel-based energy.

The early version of the bill directs the state comptroller to create a list of companies and funds that ‘boycott’ fossil fuel companies and allows the attorney general to take enforcement action against state funds that do not divest from the companies on the list.

If the state fund determines that divesting would cause it to lose value or deviate from its benchmark, it could provide that information in a written report to the comptroller, the Legislature, and the Texas attorney general to request an exemption.

– Lynn Jokela