By Huw Jones
LONDON (Reuters) – Britain’s accounting watchdog said on Tuesday its annual spot checks of audits had uncovered a sharp drop in quality at BDO and Forvis Mazars that must be “urgently addressed” or they could be barred from auditing listed firms.
The Financial Reporting Council (FRC) said its annual review of audit quality among top accounting firms showed that overall 74% of audits were “good” or required only limited improvements, but for BDO this fell significantly year on year to 38% from 69%, while Forvis Mazars’ results declined from 56% to 44%.
“Disappointingly, BDO and Forvis Mazars’ performance has fallen significantly below our expectations,” Sarah Rapson, the FRC’s executive director of supervision, said in a statement.
“Both firms are strategically important to the UK audit market and the wider UK economy, so it is vital that they deliver on their agreed improvement plans. The FRC’s supervisory work with these two firms will continue to focus on these improvements.”
The FRC said it “may take stronger action” if there are no improvements in 2025 at BDO and Forvis Mazars, which could include using the watchdog’s “auditor registration” powers, meaning that ultimately permission to audit listed companies is removed.
Phil Verity, UK chief executive at Forvis Mazars, said the company was disappointed with the findings, which did not reflect a quality improvement plan launched in October 2023 and which should improve next year’s report.
“We are encouraged by the FRC’s acknowledgement that transforming audit quality takes time,” Verity said.
BDO said it was “deeply disappointed” with its grades this year. “Comprehensive actions and plans, shared with our regulators, have been and are being implemented to address each of the areas identified,” BDO Managing Partner Paul Eagland said.
The FRC said that the “Big Four” audit firms – EY, KPMG, Deloitte and PwC – which dominate auditing of big companies, continued with the improving trend of recent years, with scores of 76%, 89%, 94% and 76% respectively this year.
Policymakers have been pinning their hopes on BDO and Forvis Mazars to provide more competition to dent the Big Four’s dominance.
Britain’s new Labour government elected earlier this month has said it would push ahead with longstanding proposals to turn the FRC into a more powerful Audit, Reporting and Governance Authority, to improve auditing standards after bookkeeping scandals at builder Carillion, retailer BHS and elsewhere.
(Reporting by Huw Jones; Editing by Mark Potter and David Holmes)
