Skip to content

30 May, 2023

Subscribe Advertise About Us
  • My Account
  • Register
  • Log In
  • Log Out

Board Agenda

  • Governance
  • Strategy
  • Risk
  • Ethics
  • News
    • Categories

      • View All
      • Board Moves
    • ESG battle

      ‘Change fiduciary laws’ to end ESG battle in US

      Academics suggest a truce between left and right, based on separating political issues from investment...

    • McDonald's antibiotics News round-up: this week in governance

      Investors challenge McDonald’s over antibiotic use; Norges Bank’s ESG push criticised; diversity box-ticking; revolt at...

    • boost audit Corporate governance code review boosts internal controls

      UK watchdog’s proposals include giving audit committees greater reporting responsibilities and addressing ‘overboarding’.

  • Insight
    • Categories

      • View all
      • Governance
      • Strategy
      • Risk
      • Ethics
      • Board Expertise
      • finance
      • Technology
    • Climate finance

      How climate change alters the financial landscape

      To achieve sustainability, companies and boards will need to look not only to their operations,...

    • generative AI

      Five AI issues to consider right now

      We may not know what AI will mean for us all in the long term,...

    • sexual misconduct

      How to prevent sexual misconduct in your organisation

      Revelations about the CBI may be shocking, but there is no place for complacency and...

  • Comment
      • View all
    • hybrid AGM

      Hybrid AGMs maximise shareholder participation

      Avoid virtual-only annual general meetings: although pragmatic in an emergency, they water down shareholders’ rights.

    • ESG break up ESG: Should E and S break up with G?

      In the world of investing, maturity has revealed significant practical shortcomings in combining environmental, social...

    • controlling shareholders The politics and geopolitics of controlling shareholders

      Shareholders with a controlling interest influence not only financial matters but can also wield great...

  • Interviews
      • View All Interviews
      • Podcasts
      • Webinars
    • information resilience IT transformation sees boards moving to ‘continuous’ management

      Data analytics available on demand requires a resilient—and selective—approach to sharing information, a webinar panel...

    • life sciences podcast Reform of NHS levy ‘harms UK competitiveness’

      Boards in the pharmaceutical and life sciences sector face increasingly difficult decisions, according to a...

    • Board priorities 2023 Board priorities 2023: tact, trust and transparency

      We asked key figures what would help boards this year. The answers ranged from 'smarter...

  • Careers
      • View all
      • Selection
      • Board Moves
    • board survey 2023 Board appointments fell sharply in 2022

      Companies appear to be sticking with experienced leaders—to the detriment of progress—suggests FTSE 350 boardroom...

    • diversity statistics Diversity statistics challenged by new scorecard

      Companies can ‘hit the target, but miss the point’, say academics researching a more ‘holistic’...

    • CEO turnover CEO turnover rises steeply

      The researchers say political changes and business difficulties may have accelerated turnover, which has risen...

  • Resource Centre
      • White Paper Downloads
      • Book Reviews
      • Corporate & Advisory Services
    • Mazars c-suite 2023

      Mazars C-suite barometer 2023

      The Mazars C-suite barometer is based on responses from more than 800 C-suite executives from...

    • CFO Career Survey Report

      Our survey, in December 2022, of almost 200 CFOs across the public, private and non-profit...

    • The Engagement Appeal: The Path to Inclusive Investor Engagement

      The Engagement Appeal: The Path to Inclusive Investor Engagement

      The Path to Inclusive Investor Engagement highlights the need for greater engagement between companies and...

  • Events
  • Search by topic
    • Governance
    • Strategy
    • Risk
    • Ethics
    • Regulation
    • ESG
    • Investor Relations
    • Selection
    • Board Expertise
    • finance
    • Technology

Years after Carillion’s collapse, the UK still waits for audit reform

by Gavin Hinks on October 31, 2022

Researchers say inquiry focused on apportioning blame to individuals, rather than investigating the regulatory system.

Carillion inquiry

Image: CristianGusa/Shutterstock.com

We are months away from the fifth anniversary of the collapse of Carillion and the UK still awaits the final pieces of the long-proposed audit reforms. Meanwhile, an examination of the inquiry process that followed the demolition of the UK’s second largest construction company finds that it was less concerned with the regulatory systems than it was with apportioning blame—largely to company directors.

Academics behind the research say this approach to investigating the disaster caused it to avoid fully engaging with regulatory design and may bring into question the usefulness of this type of inquiry.

Andrea Tomo, of the University of Naples, and Hugh Willmott, of Bayes (formerly Cass) Business School in London, conclude that members of Parliament undertaking the inquiry, as well as auditors, regulators and ministers “shared a primary focus upon the allocation or avoidance of blame, rather than interrogation of the design and operations of a regulatory system that accommodated, if not precipitated, Carillion’s failure.”

The duo draw their conclusions after a close textual analysis of transcripts from the hearings of two parliamentary committees probing Carillion’s collapse in January 2018—the work and pensions committee and the business, energy and industrial strategy committees.

Executives from Carillion; representatives from the auditors, KPMG; the chief regulator of the Financial Reporting Council; and ministers gave evidence, resulting in a swathe of recommendations and triggering three further inquiries looking at competition among auditors, regulation of financial reporting and audit, and the content of audits.

‘Greedy miscreants’

However, the audit reform process began in Parliament. After examining the kind of questions asked by MPs and the answers provided by witnesses, the researchers conclude the hearings were focused much more on assigning blame to individuals than it was to questioning the system of regulation and oversight that resulted in Carillion’s collapse.

“Attributing the collapse to a few greedy miscreants who had deviated from normal expectations safeguards the regulatory status quo and its adequacy, and the responsibility of elites for its design and operation, was largely spared from scrutiny.”

This may be a difficult commentary for many in audit and regulation to hear. But there has been some movement since the hearings. KPMG’s audit has faced investigation by watchdogs and an audit white paper brought together more than 200 separate proposals for adjusting audit, addressing the audit market, changing the responsibilities of audit committee members and beefing up internal controls.

An audit reform bill, mentioned in the Queen’s Speech earlier this year, briefly listed just a small number of measures for legislation: creation of a new regulator from the FRC to be called ARGA (the Audit, Reporting and Governance Authority); managed shared audit to force Big Four audit firms to share their work with so-called “challenger firms”; new regulatory powers to “enforce” financial reporting duties among directors; and bringing large private companies within the scope of audit rules and regulation.

Fair but not harsh

Many other proposals have been left for “soft law”, such as the UK Corporate Governance Code—an easier option than legislating, but without as much bite.

The latest research ends with a couple of observations. If the Big Four firms—PwC, Deloitte, EY and KPMG—continue in their position of dominance, they should commit to full participation in a process of regulation that “effectively” serves “diverse” stakeholders. And that should mean shifting their own metrics from indicators such as “revenue growth” and “improved profit margin”.

The writers also suggest auditors might have to consider engaging with public expectations that auditors “expose false accounting, fraud, tax evasion and risk to economies…”. (Government has expressed an interest in legislating to ensure auditors report on directors’ efforts to prevent and detect fraud).

Audit is one of those “forever” issues. There is, at its heart, an enduring conflict: auditors are paid by the people that they are supposed to be supervising, an agency issue which regulation is designed to manage.

As we approach the fifth anniversary of Carillion, it’s worth pausing to wonder whether regulation has progressed. Granted, Brexit and the pandemic got in the way, but five years seems a long time to be pondering new rules and guidelines. In the meantime, the Big Four remain the dominant players among FTSE 350 companies. There is no significant change there. It is yet to be seen whether reform proposals will make a difference.

  • Facebook
  • Twitter
  • Google+
  • LinkedIn
  • Mail

Related Posts

  • Why we need audit reform right now
    November 25, 2022
    audit reform IIA

    There is an "urgent need" for reform to the audit landscape as well as internal audit, the Chartered IIA argues.

  • Call to reform ‘comply-or-explain’ element of governance
    December 14, 2022
    Comply or explain governance

    Academics propose that—if refined—the governance principle and the UK's code will still be fit for purpose.

  • The 30-year itch: time to ditch the UK Corporate Governance Code
    July 1, 2022
    Man with magnifying glass

    Now that governance has come of age, businesses should be able to innovate within the boundaries of good regulation.

  • ESG legislation: What are the FRC proposals?
    August 17, 2022
    FRC proposals sustainability ESG

    The FRC has set out its plans to help integrate sustainability into corporate governance, reporting and audit reforms.

For thoughtful journalism, expert insights on corporate governance and an extensive library of reports, guides and tools to help boards and directors navigate the complexities of their roles, subscribe to Board Agenda

Andrea Tomo, audit reform, Big Four, board effectiveness, Carillion, corporate governance, corporate reporting, finance, Financial Reporting Council, Hugh Willmott, KPMG, Regulation, research, UK Corporate Governance Code

Search


Sign up to our Newsletter

Receive independent news, thoughtful journalism & expert insights about leadership, corporate governance & key boardroom issues straight to your inbox every week.

SIGN UP

Follow Us

 

 

 

 

Most Popular

  • Corporate governance code review boosts internal controls
  • New audit committee standards finalised
  • News round-up: this week in governance
  • ESG: Should E and S break up with G?
  • Five AI issues to consider right now

Featured Partner Profile

Diligent

Diligent

Diligent Corporation, which was founded in 2001, is headquartered in New York, NY with a European HQ in London. Diligent’s modern governance platform empowers leaders and teams at every level of the organisation to digitally transform and create ...

Featured Partner Resources

The Engagement Appeal: The Path to Inclusive Investor Engagement

The Engagement Appeal: The Path to Inclusive Investor Engagement

This is the inaugural white paper from The Engagem...

Stakeholder Engagement: A Roadmap for UK Plc Boards

This guide aims to provide directors and their col...

Digital Boards: How Technology Adoption is Driving Culture Change and Resiliency

Digital tools proved their worth to boards during ...
Leadership in AI report

Leadership in AI

This report from Board Agenda and Mazars, in assoc...
Director's Guide to Internal Investigations

A Director's Guide to Conducting Internal Investigations

An internal investigation must be handled meticulo...
 

ADVERTISE – FREE CORPORATE LISTING

FREE - Add your company profile to our Corporate & Advisory Directory.
ADD

ADVERTISE – PROMOTE YOUR REPORTS & WHITEPAPERS

FREE - Add your company profile to our Corporate & Advisory Directory.
Add Resource

Register Free

Register to receive free article views, selected resource downloads, and all the latest news alerts straight to your inbox. Register


  • Editors & Contributors
  • Editorial Advisory Board
  • Corporate & Advisory Services
  • Media Marketing Solutions
  • Contact Us
  • Careers
  • Board Director Network
  • Terms & Conditions
  • Privacy Policy
  • Cookies
  • Sitemap
|