The FT has reported this morning that:
PwC's UK partners took home record pay this year after the firm's profits rose by a quarter to a fresh high of almost £1.2bn on the boom in corporate dealmaking. Average profit per partner for the year to the end of June 2021 was its highest ever at £868,000, up from £685,000 in 2020 and £765,000 in 2019.
The boom is aopoarently from merger activity based on low interest rates, climate change activity and a bounce in technology investing.
Don't get me wrong, I am happy for the partners of PWC to make a profit. In this case the profit includes their wage and I am well aware that the market values accountants quite highly. But, are PWC partners on average worth that much? I doubt it for three reasons.
First of all, PWC's advantage is still built around the statutory monopoly of audit that is now given to just four firms in the case of the largest companies. Let's not pretend that there is an effective market here, because there is not.
Second, even though PWC did better in the audit quality stakes last year than some of its supposed competitors that does not mean that they still have anything to shout about: the fact that audit quality remains a concern when profit is so high still suggests that there is a lack of investment in the core market from which this and other firms earn their right to make supernormal returns.
And third? There is an oligopoly here and there is no sign of regulation on it. This profit is in that case akin to economic rent, and that is not a sign of ability. It is instead an indication of a willingness to exploit. And that's not smart. And it should be stopped. But nothing the government is planning on audit will actually tackle this issue. This means that new thinking on it is required and that the last round of inappropriately focussed reviews led by those from within the City be quietly consigned to the bin.
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“the statutory monopoly of audit”
Which bit of statute grants this monopoly?
The Companies Act 2006
“the statutory monopoly of audit that is now given to just four firms in the case of the largest companies”
Where does it say in the Companies Act 2006 that one of the big 4 must do the audit?
You’re talking nonsense.
I knew you would come back with crap lack that
Read the article as a whole – including re regulation
Read what numerous government enquiries say
You are the only one talking crap hee
Why not grow up and stop being a pedant?
Sigh. I hope Tim Dyson accepts that Part 16 of the Companies Act 2006 requires large companies to be audited, as they will be too large to be exempt. And that Part 42 requires a statutory auditor to be be a member of a recognised supervisory body, and eligible. So that creates a statutory monopoly for qualified accountants, doesn’t it.
Then there is the practical point that the audit of a large company requires a large enough audit firm. A sole practitioner, or even small firm, will not have the resources. Arguably, some of the tier below the Big 4 could do it. But then the reality: how many FTSE100 companies are audited by a firm other than one if the Big 4? https://www.cityam.com/big-four-continue-to-dominate-ftse-100-despite-growing-pressure/ They also dominate the FTSE250, although BDO get a look in there.
So, “there is a the statutory monopoly of audit”. And *in practice* “that is now given to just four firms in the case of the largest companies”.
Reality does not fit into his narrative
I wish that I could do such poor quality work and get paid that much for doing it.
Well actually I don’t.
I’d just like some more money or at least what they taken off me since 2010.
As I understand it, there are proportionately far more accountants in Britain than in the rest of Europe, and yet they are put on far higher an earnings pedestal here. Supply and demand do not seem to be aligned. How does Mr Market explain that?
Agreed
Long been known – far too many accountants and lawyers on company boards in the UK too. Elsewhere being good at making, selling, marketing, people management and other real skills is what gets you to the top.
Helps explain the UK’s intensive financialisation of both public and private sectors.
I don’t know what “clever” means when applied to accountants, it has no moral context. My dog is clever, many scammers are clever, many people consider tax cheats to be clever. The word itself is meaningless outside of an ethical context and yet it is taken by most to elicit approbation.
When I complained to East of England C0-0P about them using PWC they said that because of their size ( the Co-op’s size ) they had to use one of the big four. As I understand it, the big four lobbied the appropriate bodies to ensure that new regulations would give them powers which smaller audit firms did not have.