UPDATE 1-Britain to shake up how companies are run and audited

(Adds more detail, reaction)

By Huw Jones

LONDON, March 18 (Reuters) - Britain proposed weakening the
market grip of "Big Four" auditors on Thursday and making
company directors responsible for spotting fraud after the
collapses of retailer BHS and builder Carillion.

Directors would have to repay bonuses if their company went
bust or serious failings came to light, and dividends and
bonuses would have to be stopped if firms didn't have enough
cash - a lesson from the Carillion collapse.

The long-awaited proposals, put out to a four-month public
consultation, implement the bulk of recommendations made in
three government-backed reports on audit market competition,
regulation and corporate governance.

"It's clear from large-scale collapses like Thomas Cook,
Carillion and BHS that Britain's audit regime needs to be
modernised with a package of sensible, proportionate reforms,"
business minister Kwasi Kwarteng said in a statement.

Some of the proposals are already being introduced in
voluntary form, such as operational separation of audit and more
lucrative consultancy work at PwC, Deloitte, KPMG and EY - the
"Big Four" firms that dominate auditing of blue-chip UK
companies.

The Financial Reporting Council, criticised by lawmakers for
being too timid in regulating auditors, is already undergoing an
internal transformation to become the more powerful Audit,
Reporting and Governance Authority or ARGA, proposed on
Thursday.

The government proposed that smaller audit firms undertake a
meaningful portion of a big company audit, stopping short of the
joint audit initially recommended by the UK Competition and
Markets Authority.

This would help "challengers" like Mazars, Grant Thornton
and BDO build up expertise to fully take on the Big Four later
on. If this competition strategy fails, the Big Four face caps
on market share, the government said.

Mazars said targets of at least 20% of total audit fees at
challenger auditors for FTSE-350 companies after five years of
reform should be set.

COLLECTIVE VS INDIVIDUAL

New reporting obligations would be introduced on both
auditors and directors around detecting and preventing fraud.

Company boards would be required to set out what controls
they have in place in a British version of the stringent U.S.
Sarbanes-Oxley anti-fraud safeguards introduced after energy
giant Enron collapsed.

ARGA would have powers to investigate and punish all company
directors.

The Institute of Directors said it was appropriate to
consider how accountability of directors could be improved, but
the collective responsibility of a board should remain the
central feature of UK corporate governance.

Accounting experts say such increased responsibilities on
directors would mean individuals taking on fewer directorships.

After the consultation ends in July, the government said it
would propose legislation when "parliamentary time allows".

"We urge ministers to get on with implementation as quickly
as possible, with the establishment of the new regulator as the
top priority," said Michael Izza, CEO of the ICAEW, a
professional accounting body.
(Reporting by Huw Jones. Editing by Alex Richardson and Mark
Potter)

Carillion Plc