According to the FT:
BDO has set its sights on auditing the biggest listed clients in the UK after merging with UK competitor Moore Stephens in a transformative deal that will shake up the competitive landscape in Britain's audit market.
The merger means BDO will leapfrog Grant Thornton to become the UK's fifth largest accounting firm by revenues, boosting partner and staff numbers by a quarter to about 264 and 5,000 respectively.
So, as accountancy burns the profession is still playing boys games, arguing who is bigger than who:
The deal, which both firms started discussing four months ago, will bring an additional £135m of revenues to BDO, bringing total annual revenues to about £560m – comfortably above the £500m of revenues posted by Grant Thornton's UK business last year.
The FT adds:
The deal will be closely watched by regulators and audit market critics who fear that competition in the industry has been stifled by the largest four players: EY, KPMG, Deloitte and PwC.
The timing could not be better for them, of course. What it lets the top tier suggest is that there is a market solution to the crisis in the financial reporting profession because choice might be created without having to break up the Big Four firms. This, however, is not true. The crisis in accountancy is only peripherally to do with market concentration as such. The crisis is about four things.
The first is supine regulation, controlled by the profession itself.
The second is the so-called professional institues actually being trade bodies.
Third, it is that the accounts that the profession produces are not fit for most purposes, precisely because they are only designed to assist those deciding whether to supply capital to a company or not, and nothing else is considered.
Fourth is that auditing has been reduced to simply checking that all the right boxes have been ticked and is no longer about ensuring a true and fair view is supplied.
The merger of two mid-tier firms does not solve these problems. Nor will the break up of the Big 4 do that, in isolation. The problems are much deeper than the organisational form of these firms, important as that is.
If BDO merging is the answer, then the wrong question is being asked.
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This is a valuable contribution to this debate because the big firms and the professional bodies are using the magicians trick of misdirection to direct attention away from the two main problems areas which are points 3 and 4 on your list.
Somewhere in the recent past accounting and auditing standard setting were hi-jacked by these firms who now produce standards of staggering obfuscation, which not only confuse and obliterate any sensible disclosure of financial information but seem no longer to require auditors to report what they know to be the true situation by hiding behind their box-ticking.
I shall be making these points to Rachel Reeves’ Committee, which hopefully won’t too be misled as no doubt these firms will try to do. As you pointed out recently they already have their hand firmly on the tiller of the the advisory board already.
Am I watching a political sitcom and nobody told me? I fear not as you couldn’t make this up!
Maybe I should submit to that committee……
Is there a call for evidence?
What follows might be of interest. I had dinner last night with somebody married to an accountant who works for one of the big 4 – but not in the UK. The guy has worked for them for more than 20 years, 16 hour days, weekend work etc etc. He suffered burnout.
In the 1980s and 1990s the big four went on a take-over tour picking up sizeable accountancy practises in other countries. The chap noted that over time the ethos changed as the Big4 company imposed an “angle-saxon” ethos on the company. Now the view is “stack-em high & sell them cheap” even in complex areas such as tax. He is also his own sales person – so he has to sell (increasingly standardised) services rather than deliver them.
The same Big4 company is now also taking the “constructive dismissal” route with respect to those that do not meet quotas and/or are viewed as “expensive”. The aim is to ensure that a person can be dismissed with no “package” if the right “grounds” for dismissal can be “engineered”. This particular Big4 company appears to be doing this systematically on the basis that “packages” are expensive but dismissal because of “failure” is very very cheap.
To say I was surprised at hearing the above is something of an understatement. Relevance: if an accounting company cannot even act ethically to its own employees – what hope for ethical actions with respect to exterior activities? Mergers? they should all be halted – perhaps a break-up of the big four and then a breather taken (wrt mergers) for say 20 years.
This is essentially true
Partners are ‘profit centres within their own firms. If they do not come up to scratch they are out.
And woe betide those who do want to do public interest work – they still have to make the profit as well.