New study shows less than 1 in 5 trust the UK audit system
International accounting and advisory firm Mazars has published a study canvassing public opinion on the UK economy and the audit system1. Following a Queen’s Speech which made no mention of reform of the audit market, leading to BEIS Select Committee chair Rachel Reeves’ concerns over “a missed opportunity”, the research shows a public appetite to maintain focus on the reform agenda. The study, which also gauged public sentiment over the collapse of Carillion, suggests that the general public has a real interest in an audit system that makes our economy stronger through improved transparency and accountability, and is unwilling to accept high profile corporate failures as the status quo.
Public appetite for audit reform
The study indicates that the public strongly supports audit reform, with nearly two-thirds (62%) stating that they don’t have trust in the current audit system to provide independent and accurate assessments of a company’s financial position. Mandatory joint auditing, one of the key remedies suggested by the Competition and Markets Authority (CMA) in its comprehensive package of measures proposed to the government, is extremely popular among the public, with nearly three quarters of respondents (72%) supporting the introduction of joint audit as a solution to the string of accounting scandals and corporate failures in recent years.
The collapse of Carillion
Ineffective audits have been blamed for a string of business collapses, and high profile failures such as Carillion and Thomas Cook are firmly part of the public consciousness. Respondents had strong feelings about the fallout from these cases. The majority (69%) of the general public were aware of the collapse of construction company Carillion, after it went into liquidation with debts of around £1.5bn early last year. Many of those familiar with the story had grave concern about the impact of the collapse on the various groups involved:
• 81% were concerned about the 30,000 suppliers, many of them small businesses, who were owed about £1bn
• 81% were concerned about the 3000 employees being made redundant
• 79% were concerned about the third of apprentices who were still without work 3 months after Carillion folded
When asked what words best described their feeling about the Carillion collapse, the top three were disgust, anger and greed – suggesting deep disapproval of the behaviour of those responsible for the spectacular fall of the company.
David Herbinet, global head of audit and partner at Mazars said: “We have long believed that the public has a real interest in an audit system that makes our economy stronger through improved transparency and accountability, and our research only strengthens this belief. High profile company collapses are becoming all too common, and impact hard-working people who understandably have grave concerns and are now demanding action.
“There is insufficient choice and resilience in the audit market. Substantial reform is now critical to the sustainable success of our largest companies and the wider economy. Nearly 3 out of every 4 members of the public (72%) support the introduction of mandatory joint audit as a remedy, and we see this particular reform as a major opportunity to create an even playing field for challenger firms to compete more fairly in the large corporate market, in which 99% of the audit fees of FTSE 350 companies are currently paid to just four firms. A diverse market is vital for audit quality and for the overall functioning of the economy.
“The CMA has produced a very effective range of measures to create a genuinely competitive audit market that addresses the needs of society. This represents the clearest opportunity in decades for real change. It’s now time to maintain momentum and pursue brave solutions”.
