The FT begins a new series on accountancy this morning, looking at the failings of this sector. The series comes as the Kingman Review collects evidence on the future of the regulation of the audit profession in the UK. It headlines with this:
An illusion of choice: the conflicts that mire the audit world
Most listed US and British groups use one of the Big Four, with issues discreetly hidden
The evidence comes from two charts. This is the concentration of Big 4 representation in the audit market of FTSE 100 companies:
98% of such companies are with the Big 4.
And this is the relative weighting of audit and consulting fees within those firms:
In other words, consulting is vastly more important to them than audit. Despite that they control the audit market. And the customers for their consulting services are the FTSE 100. In that case the opportunity for many companies to change auditor is very low because any firm other than the one they already have is ruled out by conflicts of interest.
The result is that there is no real audit market. And so no alternative opinion available to that already supplied. Which is precisely what matters in this sector.
This should matter, a great deal. And Kingman should be doing something about it. The first thing it should be doing is encouraging debate.
The second it should be doing is being transparent in its workings.
And third, any conflicts in the evidence it receives should be transparent.
So that, fourth, its findings can be seen to be untainted by any influence.
I was then worried to hear, yesterday, that the evidence being submitted to the Kingman review, including my two submissions (one individual; the second joint) is not going to be published.
It's very hard to overstate just how inappropriate that plan is. It's essential that for once there be a little transparency in this sector. Kingman needs to provide it. Publishing the evidence is the first step towards that. It is essential that it happens. The review of the Big 4 cannot take place behind closed doors. And we have a right to know what they are saying to it. The alternative is the perpetuation of the farce of discreet hiding of the facts that the FT rightly highlight.
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The non audit practice would be delighted to get rid of their audit practice. The restrictions it places on what other services can be provided basically mean you can’t do anything, plus v limited profit is made by the pure statutory audit practice.
Mike says:
“…plus v limited profit is made by the pure statutory audit practice….”
‘Scuse me for a moment whilst I apply fresh rosin to my bow. 🙂
An excellent appraisal of the Big Four is set out by Richard Brooks (Private Eye) in his latest book Beancounters: The Triumph of the Accountants and How They Broke Capitalism – https://www.goodreads.com/book/show/40109076-bean-counters
https://youtu.be/azkFz1ZbXyU
Whitewash behind closed doors.
I vote absolutely no confidence and the squandering of yet more public money on a closed shop for the Benefit scroungers.
It bloody stinks.
Whilst I have been called a “Tory Nutjob” by a previous contributor, I wholeheartedly agree with this article. On a number of counts.
1: when companies merge etc, there must be a conflict of interest.
2: as a businessman with a small consultancy most of the consultancy opportunities I see always go to one of the “big four”. It’s almost that EY get the first job, PWC get the second, KPMG get the third etc etc
3: on critical issues, you wonder who is behind certain decisions.
4: when Carillion went bust earlier in the year, someone explain to me how the credit rating stood so high until the last couple of weeks.
And it goes on…..
The main problem is that if Kingman decides that the big four have to be split up, which would benefit all and sundry, how would that work?
The Big 4 claim to know how to do these things…..