My Lords, I am a co-signatory to Amendment 34. In fact, I put the same one in because its source is the Institute of Chartered Accountants in England and Wales, of which I have been a fellow for 50-odd years. I view that as an interest, I suppose.
As has been stated by noble Lords, the amendment gives greater discretion over which foreign auditors and foreign audit qualifications are accepted in the UK. The noble Baroness, Lady Blake, explained why this was and why it was needed. It allows the regulator to apply its professional judgment; this amendment states that clearly.
In 2020, the big four UK accountancy firms performed the audits of 96 of the 100 companies in the FTSE index—this is very much a closed shop. The dominance of the big four audit firms has long been a matter of concern, and their record on big company failures has not been impressive. Various professional bodies have been looking at this matter for some time in relation to companies such as Carillion, Thomas Cook and BHS—one could go on about this.
As mentioned by the noble Baroness, Lady Blake, in March this year the Business Secretary launched a major overhaul of audit. We did not hear too much about it after its launch. The amendment that we put forward today is to allow the regulator greater discretion, if it is needed, as a step to unleash competition in the audit market. As I said, when the big firms’ audits are controlled by the big four accountancy firms, something really needs to happen.
We are promised a new audit profession, overseen by a new regulator, with the aim of driving up standards and quality—this was referred to by previous speakers. This amendment will assist in the aim of requiring large companies to use smaller challenger firms to conduct part of the audit. In the debate on the previous amendment, the Minister spoke about giving empowerment to regulators. This amendment attempts to give those regulators that empowerment to do what they think is right rather than something that is written down in black and white.
The noble Baroness, Lady Noakes, talked about flexibility, which is relevant to this very technical amendment—there was a laugh in relation to this being accountants talking about more accountants. But this is important, because the proper audits of companies are how this country runs, and it has not been running too well on the big companies side. I spent the first seven years of my career at a firm called Peat Marwick Mitchell, which is now KPMG, and audit has changed radically since then. There is too much looking at systems and not at whether those accounts and balance sheets—snapshots of a company’s position on a particular date—are true. Clearly, in companies such as the ones that I have mentioned, this is not the case.
This is a very technical amendment that had its genesis in the largest professional accountancy body in the UK. I hope the Minister will consider accepting it.