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Britain likely to adopt Sarbanes-Oxley style audit rules in some form, says regulator By Reuters

© Reuters. FILEPHOTO: An employee arrives at his Canary Wharf, London office on February 26th 2014. REUTERS/Eddie Keogh/File Photo

Huw Jones

LONDON (Reuters – Britain could adopt U.S.-style protections for financial reporting, even if government resists legislative changes, the UK accounting watchdog stated Monday.

After the collapse of large companies such as Carillion and BHS, the government will announce before the end the way it plans to legislate.

Directors should state the reasons why they feel their company’s risk management and internal controls are sufficient to allow for accurate financial reporting.

The U.S. Sarbanes-Oxley (or SOX) rules 2002 are the basis of this proposal. Directors can be sent to prison for breaking these laws, but no similar penalty has been suggested in Britain.

Jon Thompson, Chief Executive Officer of the Financial Reporting Council stated that this was the key political decision of the reform package. Ministers are going to carefully evaluate the administrative costs and benefits of such rules.

Thompson, an accountant industry association, stated, “Even if legislation does not pass in this area it will still be relatively simple to raise the standard with revisions in the corporate governance codes or for us include reporting on internal control in minimum standards, audit committees, or both.” Thompson addressed an audience at the ICAEW.

KPMG or Deloitte, EY, Deloitte, PwC, or the Big Four dominate audit. While the UK government proposes that the Big Four share their audit with small rivals like BDO to reduce the dominance of these firms in the market, most companies oppose the idea and would prefer a limitation on market share.

Thompson claimed that there’s no solution, and that the FRC wants the ability to apply a market-share cap or share audit company by company.

Thompson indicated that Thompson believed it “highly probable” that there would be an obligation for regulators to establish a plan on how long it would take to transform the audit market significantly.

In the coming weeks, FRC will publish a 19 point framework that outlines what makes high-quality auditing and practice.

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Mike Robinson
Mike covers the financial, utilities and biotechnology sectors for Street Register. He has been writing about investment and personal finance topics for almost 12 years. Mike has an MBA in Finance from Wake Forest University.