LONDON, May 21 ― Britain's audit industry failed to issue warnings over three quarters of bankruptcies of listed UK firms over the last decade, a study said yesterday, slamming conflicts of interest and weak regulation.

The verdict from Audio Reform Lab, a think tank based at Sheffield University in northern England, comes as the UK government's sector overhaul appears to have stalled.

Audio Reform Lab revealed that auditors failed to sound the alarm prior to 75 per cent of the nation's biggest 250 bankruptcies between 2010 and 2022.

The nation's four biggest accountancy firms ― Deloitte, EY, KPMG and PwC ― earned 96 per cent of audit fees for UK's top 350 listed firms in 2022, according to the analysis.

The study added that so-called Big Four handed “record” pay packages to partners.

Average pay for partners jumped by 31 per cent to £872,500 (RM5.19 million) between 2020 and 2022, while average pay for Deloitte partners topped £1.0 million, the study said.

“The UK audit sector is plagued by poor standards, a toothless regulator, conflicts of interests and weak sanctions for malpractice,” said Professor Adam Leaver, Audio Reform Lab director and author of the report.

“Auditors are failing to show independent judgement or professional scepticism ― both are non-negotiable features of their job. Reform has been long-promised and is long overdue.”

The report added that, between 2015 and 2022, the Big Four faced malpractice fines that were “too small to materially affect partner pay or change behaviour”.

The four largest accountancy giants were slapped with regulatory penalties totalling on average just 0.16 per cent of revenue and 0.85 per cent of profits, the study found.

The UK auditing sector faced outcry over its failure to identify or prevent major bankruptcies that sparked massive job losses, including at retail chain BHS in 2016, construction firm Carillion in 2018, and tour operator Thomas Cook in 2019.

The British government in 2021 published wide-ranging proposals to shake-up the audit sector and restore trust.

Yet those plans were diluted in 2022 and now appear to have been postponed indefinitely.

“These commitments have been watered down and subsequently dropped from legislative programmes,” the think tank added yesterday.

“The Audit Reform Lab is calling on the next government to enact far-reaching reforms ― including the legal separation of audit from non-audit services and establishing a new regulator with enhanced enforcement and sanction powers.” ― AFP