By Huw Jones
LONDON, Oct 11 (Reuters) - Britain is likely to adopt
landmark U.S.-style safeguards on financial reporting in some
form even if the government shies away from legislation, the
UK's accounting watchdog said on Monday.
The government will say before the end of the year how it
will legislate to apply some or all recommendations from three
reviews of corporate governance and auditing, after big company
collapses at retailer BHS and builder Carillion raised questions
about audit quality.
The government has proposed that directors state why they
believe their company's internal controls and risk management
are strong enough to ensure accurate financial reporting.
It draws on U.S. rules from 2002 known as Sarbanes-Oxley or
SOX, where directors can go to prison for breaches, though no
such penalty has been proposed in Britain.
Jon Thompson, CEO of the Financial Reporting Council, said
this was the "key political decision" of the reform package and
ministers will consider "very carefully" the administrative
costs of such rules against their benefits.
"Even if legislation is not passed in this area, it will be
relatively easy to raise the bar further with revisions to the
corporate governance code, or for us to include reporting on
internal controls in minimum standards or audit committees,"
Thompson told an event held by the ICAEW, an accounting industry
body.
Audit is dominated by KPMG, EY, Deloitte and PwC or the Big
Four, and the UK government has proposed requiring these firms
to share an audit with a smaller rival like BDO, but many
companies are opposed and prefer a cap on market share.
Thompson said there is no single solution and the FRC has
told the government it wants powers to impose a market share cap
or shared audit on a company-by-company basis.
It was "highly likely" there will be an obligation on the
regulator to set out a plan on the number of years it would take
to change the audit market in a significant way, Thompson said.
The FRC will also publish a 19-point framework in coming
weeks that spells out what constitutes high quality audit and
practice.
(Reporting by Huw Jones; Editing by Susan Fenton)