UK regulator tells auditors to justify ditching risky clients
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Britain’s auditing watchdog warned accountants on Thursday that they risk breaching a recently introduced industry code if they shy away from checking the books of problematic companies, such as those deemed to have weak management controls.
The Financial Reporting Council (FRC) said its new audit firm governance code, which came into effect in January, states that auditors must take account of the public interest when they take on or decline work.
For accountants a key aspect of this public interest responsibility is that listed companies are required by law to have their accounts externally audited.
“We will be concerned in situations in which the firms that are the most competent and capable to undertake an audit either resign, do not re-tender, or decline an invitation to tender with no consideration of the public interest implications,” the FRC said in its annual health check of audit quality at seven firms.
Resigning from auditing a challenging company due to its weaknesses of management, a breakdown in relations, or where the company refuses to pay a fair price, would not necessarily be seen as an acceptable “de-risking” strategy, the FRC said.
