06 February 2019
Our community looks at how Carillion's collapse has changed the industry
News in the world of governance and business has been dominated by Carillion over the past year. In recognition of the anniversary of the collapse we asked the Governance and Compliance and the Core community to reflect upon the impact on the audit process and consider how the future of the industry may be affected.
When asked if the collapse of Carillion had led to improvements in the audit process, a very small minority (9%) felt that it had, with over half (51%) believing that processes had failed to advance. Generally companies felt that it was ‘too early to tell’ if things had improved to any great extent with one responder stating that ‘It will take considerable time and future cycles of mandatory tenders to establish a step change in independence, rigorous challenge and culture.’
One responder claimed that this was due to good levels of service pre-Carillion saying ‘It has clearly shaken the audit firms, but the audit process always seemed robust where I have worked,’ but another rather worryingly claimed that ‘auditors have become lazier. Instead of sourcing their own documents and reconciling their work they have set up portals to collate documentation in a specific format and push it through an algorithm. This is more efficient from their side but their clients are forced to work harder: basically outsourcing their role to their clients.’
When asked about how confident they are about proposed changes leading to improvements in the audit process morale was low. When asked to rate their confidence on a scale of one to ten, with ten being very confident and one not at all, the average response was a lowly four.
We asked our responders for their opinion on what would be the best way for the big four accountancy firms to reform and the biggest response (45%) was a call for a split between audit and advisory businesses. One responder reflected on this stating; ‘splitting audit and consultancy firms could materially impact the quality of the pipeline to the audit firms as consultancy firms will look more attractive and can generate fees from a more diversified base. It could also result in a significant increase in audit fees as the firms seek to retain talent.’
Increased regulation and monitoring was highlighted by many as a necessity in ensuring improvement. One responder claimed: ‘Audit firms need to raise their standards to ensure audits are conducted properly and the FRC needs to monitor performance better and intervene earlier,’ another said ‘Current rules to ensure changes to Audit Partner and changes to Auditor seem to be the best way to ensure challenge’.
We asked our community to reflect upon what lessons the industry had learnt. One said ‘that governance and controls on the face of it are not enough. Organisations as they get bigger don’t always have line of sight on all key risks. The aspects of an organisational firm that drive strong ethics can also be lost if not protected’ another ‘auditors are not as independent and reliable as one might hope.’ There was however one answer that came up repeatedly; ‘Not much!’
If you are a company secretary or governance professional at a leading UK business, and you would like to take part in or comment on future surveys, email firstname.lastname@example.org