Audit reports and the value of insolvency and restructuring

19 December 2018

“Reforming the auditing industry” is a report [PDF] commissioned by Shadow Chancellor John McDonnell and carried out by a team led by Professor Prem Sikka, published shortly before the Kingman report into the Financial Reporting Council [PDF], and the Competition and Markets Authority’s proposals to improve competition in the audit sector. The Sikka report makes a number of suggestions for reform of the auditing market, which may or may not end up being adopted by the Labour party as official policies – the insolvency and restructuring framework receives some attention as part of the wider accountancy sector.

You can read R3’s submission to Professor Sikka’s review here [PDF].

One of the interesting points raised in the Sikka report is about the social contribution of the accountancy sector. We think the insolvency and restructuring profession contributes significantly to the UK’s economy and society. The profession plays an indispensable role in rescuing businesses and jobs wherever possible, tackling fraud, and recovering funds for creditors, which can then be used to invest in new ventures. The UK’s insolvency and restructuring framework is highly rated by the World Bank (although there is always room to improve), while Government reforms are in process to ensure that the profession has all the tools it needs to get the best possible outcome for all stakeholders when a business is distressed, or becomes insolvent.

For anyone interested in learning more about the UK’s insolvency and restructuring profession, R3’s new guide, “The role and value of insolvency practitioners in the UK economy” [PDF], will be useful. Insolvency practitioners are – due to the nature of their work – often called upon to make highly time-pressured decisions in delicate and fast-moving circumstances. If they make a wrong call, they can face serious consequences, and must be prepared to back up every decision with evidence and a clear paper trail. Our guide sets out how the profession is regulated, and how complaints are handled. Insolvency practitioners face stringent sanctions, up to and including loss of their professional licence, if they are found to fall short of the standards required. We hope our guide goes some way towards improving public understanding of the work the profession does.