Carillion is ancient history. Seven years on, the audit profession has moved on
Seven years on from the collapse of Carillion, the audit industry has already moved on. It’s legislation that needs to catch up, writes ICAEW chief executive Alan Vallance
This January marks an inauspicious anniversary for business resilience: seven years since the collapse of construction giant Carillion.
A formal consultation, three reviews and eight business secretaries have come in the years since. It was a corporate failure which started the calls for reform of audit and corporate governance, reforms that are key to the accountancy profession. But what we haven’t seen is legislation. It could have been done under the previous government, but it wasn’t. The consequence of being too slow to fix issues relating to governance, assurance and trust has been to reduce the attractiveness of the UK to win investment and generate growth.
Nevertheless, we go into 2025 hoping that Jonathan Reynolds, business secretary since July, will be the person to finally make the change after the government included audit and corporate governance reform in the King’s Speech in July.
The industry has moved on from Carillion
I took the reins at the Institute of Chartered Accountants in England and Wales (ICAEW) last year, and since then I’ve been speaking to our members about why in 2025 we are still waiting for these reforms and, when they reach the statute book, what we need.
The truth is: Carillion is ancient history. Put simply, things have moved on, but the reform agenda hasn’t. Government action stalled but I can tell you that in those seven years the profession did not sit still; audit quality has improved, firms have invested in new technologies, they have hired new staff, they have separated the operations of their audit and non-audit practices. Our regulator, the Financial Reporting Council, has acknowledged these voluntary improvements. Our profession does not and will not compromise on audit quality, and we won’t shy away from being critical where auditors do not meet the high standards that we demand.
It is now time to finish these reforms and close this chapter.
In 2025, there is a pressing holistic need for economic growth, and that is rightly the first mission of the government. Our country needs growth and to achieve that we must play to our strengths, of which professional and business services are a key part.
Recent data shows that the sector has outperformed the rest of the economy, adding millions of jobs and billions of pounds in value to the UK. At ICAEW, our members run many of the world’s companies; 84 per cent of the FTSE 100 has an ICAEW Chartered Accountant on the board, and 99 of the top 100 brands in the world have our members involved in their success.
The sector is doing well, but finally creating a strong corporate ecosystem which injects trust into the economy will mean it can thrive. And that will lead to investment, which will lead to growth – and that’s what this bill should do.
A new chapter for the audit sector
Firstly, to take our economy into a new era of growth and to embrace net zero, we think the regulator should hold companies to account for existing responsibilities. This significant step would enable them to investigate all board directors for serious corporate reporting and audit failures, fully holding all board members to account.
Secondly, the legislation must close gaps in the ecosystem. It’s important that the scrutiny of our biggest and most important companies – known as Public Interest Entities (PIEs) – is effective and proportionate. It’s notable that BHS, another business which failed, didn’t fall into this category, and careful consideration will need to be given to capture the right significant companies with a clear and significant public interest, while ensuring that auditors are not deterred from taking on this work. We think that using flexible criteria that responds to market changes is the right approach for this vital area.
Thirdly, we must make sure that no part of the ecosystem has disproportionate burdens placed on it. It’s critical that the regulator has an objective of ensuring high-quality audit, resilience and choice in the audit market, without over-regulating the sector. If these reforms are designed and implemented well, they will attract new firms to the PIE market and consolidate recent improvements in quality and resilience.
When we do get it, the legislation must be forward-looking and future-proofed, and make Britain the best place in the world to invest and do business. Reliable and trusted company reporting is fundamental to investor confidence, and this in turn is key to economic growth and stability.
Most of all, we need this legislation now, to turn the page on 2018 and to look to the future, a future of sustainable economic growth. Let’s hope this time the minister means business.