The game’s up for the ‘Big 4’- our top auditing firms should embrace reform, not fight it
Radical reform of the auditing profession is now inevitable and it’s long overdue. The Big4’s monopoly of the largest audits – last year they were responsible for all but 11 of the FTSE 350 constituents – is under particularly close scrutiny following a string of headline-grabbing corporate failures for which they have been rightly held partly to blame. People in high places have finally realised that relationships between the top audit firms and their clients have become far too cosy.
One of the major problems has been that their clients (including the High Street banks, by the way) have been content not to be questioned too closely about their financial accounts. They have been more than happy to part with fat audit fees to have them signed off by a big, prestigious auditor. Historically, this was seen to be good for the image, but not anymore. Such relationships have led to neglect, complacency, failure and, ultimately, huge loss of reputation for all the parties involved. The drop in standards has been driven by arrogance.
Rachel Reeves MP, chair of the Business Energy and Industrial Strategy Committee (BEISC), recently launched her report into the future of audit to the ICAEW in which she referred to “incompetence, obfuscation and sometimes fraud” – scathing words, indeed. She referred also to 27% of audits being below standard. The report contains 32 recommendations, some of which the members of the Institute will find extremely uncomfortable.
Another powerful voice – Sharon Bowles, former MEP and a leading contender to chair the UK’s new accounting watchdog – is calling for more representation for women and ethnic minorities on the grounds that the Big4 were “behind the times” and “failing to represent society”.
The likes of EY, KPMG, PwC and Deloitte would do well to embrace and help shape reform rather than have it imposed from the outside. This time, the calls for root and branch change – possibly involving the actual break-up of the Big4 – are not going to fade or go away. Above all, we need an audit profession we can rely upon and in which we trust. The more the people in it are seen as smug, overpaid and elitist, the more they will be despised – a bit like the bankers who let down society ten years ago.