Auditing is Boring - Until It Matters

In 2018 giant construction and facilities management business Carillion collapsed. The loss of jobs and the cost to the government led to calls for the audit regime to be overhauled – mainly because the auditors of Carillion blithely signed off on the accounts. This was despite lots of red flags which were more akin to socking great red banners than humble little flags.

Of course this had nothing to do with the consultancy fees they were also charging Carillion at the time.

So the government proposed an Audit and Corporate Governance Reform Bill which would create a new regulator – the Audit Reporting and Governance authority (‘ARGA’) with stiffer powers and a broader remit to restore confidence in the annual audit.

In January 2026 – eight years after the collapse of Carillion – they have announced that they’re scrapping the whole thing. So status quo, business as usual, nothing to see here. The reason:

• increased cost to business (what – accounting properly and telling the financial truth?)
• not enough parliamentary time, and
• the need for reform not as pressing as it once was (because businesses are all honest and truthful and auditors are ruthless in challenging directors, of course)

Contrast the pre Trump USA. When, in 2001, the huge Enron fraud was revealed they had, within a year, put the Sarbanes Oxley Act on the statute book. This has some very strict rules within it including making directors sign off on their internal control systems under penalty of fines or imprisonment if they tell lies.

True the Big 4 have split their audit and advisory arms and the FRC has toughened up and levied some whopping fines but, as a regulator it lacks statutory powers which would increase its reach and guarantee its funding.

The annual audit is a fundamental part of building trust with investors in the numbers they see before them. If the audit is flawed or suspect why should the results be seen to mean anything?

Eight years of delay and faff represent a missed opportunity to solidify the importance of the audit process and to demonstrate its importance to the financial world.