Speaking on November 19th and with the Labour Party’s slogan firmly set on the podium, ‘Rebuilding Britain for the many, Not the few’, Shadow Chancellor of the Exchequer John McDonnell promised to break up the Big Four’s ‘cartel’ style practice, if the Labour Party is voted in at the December 2019 general election.
His speech outlined the Labour Party’s vision for corporate governance, regulation and accountability for businesses. The proposed dismantling of the Big Four’s business practices is linked to securing auditor independence, a collective stance felt in many quarters that would leave auditors powerless to sell any consultancy services to audit clients. With push back from Deloitte, KPMG, PwC and EY, the Competition and Markets Authority (CMA) is satisfied with an organisational split of the large audit firms, whereby audit and non-audit parts of the business will be legally separate, but could remain in common ownership.
However, Labour’s proposal would go further in favouring a structural split of firms i.e. the establishment of audit only firms, with the audit and non-audit parts of the businesses being owned by legally separate parties and even putting a ban on auditors selling non-audit services. McDonnell’s plans for business oversight means introducing a new statutory auditor to examine the records of financial firms including banks, credit unions, building societies and insurers. In terms of reporting, McDonnell detailed there would be a requirement for auditors to declare their political affiliations and publish information on their offshore links and audit lawsuits and failures.
McDonnell’s proposed reforms are underscored by the wave of negative sentiment shared by the government, industry watchdogs and regulators such as the FRC that says auditors are failing to reach the “necessary high standards”. The FRC points to firms that are as yet reluctant to take management to task on their assessment and declaration of the health of their business’s finances and audit revenue. The Shadow Chancellor also proposed reforms on business regulation, large executive pay grades and short-termism, in a bid to help employees, “take back control”.
To find out more, the Labour Party’s new manifesto will be published on November 21, 2019.