A review of the UK’s auditors ordered following a string of corporate scandals has effectively demanded the creation of a new industry to bolster confidence.
Sir Donald Brydon was tasked by the government a year ago to examine the sector amid a backlash over a failure to prevent the collapses of a string of public companies.
The so-called big four accountancy firms and regulators have faced criticism from MPs for their handling of accounts of firms including construction company Carillion, BHS, Patisserie Valerie and Thomas Cook.
Criticisms have included failure to identify worrying accountancy practices or even examine fraud.
The work carried out by Sir Donald, a former London Stock Exchange chairman, builds on the findings of a separate review by a former Treasury mandarin which led to the announcement of a new industry watchdog – to replace the Financial Reporting Council (FRC).
Sir Donald said it was crucial there was a redefinition of audit and its purpose, reinforcing its role as a public interest function through an expansion of its remit on behalf of shareholders and greater transparency.
His recommendations included new qualifications and training to create a new industry standard – separating audit work from accountancy.
He said: “The current audit framework is made up of a mosaic of legislation, statutory and self regulation and formal and informal guidelines developed over a century.
“It is no longer capable of fully supporting the expectations of the users of audit,” he concluded.
The government was yet to respond to the report, which concluded studies it had ordered into the sector.
Sky News reported during the election campaign that a proposal by the Competition and Markets Authority to impose mandatory joint auditors on large listed companies was set to be rejected if the Conservatives won.
The recommendation would have seen a second firm – from outside the big four of Deloitte, EY, KPMG and PricewaterhouseCoopers – acquire collective responsibility for the oversight of their books.
But City editor Mark Kleinman said officials at the Department for Business were understood to favour a shared audit scheme instead that would see a smaller audit firm work on part of the process.
The FRC announced on Tuesday that it was introducing a ban on firms providing recruitment and remuneration services to auditing clients to combat conflicts of interest.