UK Accountancy firms face major overhaul
Construction firm Carillion suffered a high profile collapse, being liquidated just months after receiving a clean bill of financial health in its audit by KPMG. This case, and others like it, have led to the Competition and Markets Authority (CMA) pushing to separate audit from consulting services, encouraging a broader range of auditors. Currently, 97% of big companies’ audits are undertaken by the “Big Four” accountancy firms. Deloitte, KPMG, Ernst & Young and PwC are conducting these audits whilst also providing the same companies with other services.
In the CMA’s words: “Companies choose their own auditors. As a result, we have seen too much evidence of them picking those with whom they have the best ‘cultural fit’ or ‘chemistry’ rather than those who offer the toughest scrutiny.” With that in mind, the CMA have three main proposals to bring about the “robust reform” that is necessary:
- Dividing audit and advisory businesses, with separate management and accounts.
- Higher accountability for those appointing auditors, with the aim of strengthening their independence.
- A system of “joint audit”, where a Big Four and non-Big Four firm work together on audits.
While these are certainly strong starting points, the CMA has noted that if these recommendations are not far reaching enough, they will persist until the problems are addressed. David Sproul, Senior Partner and Chief Executive of Deloitte has said, “It’s clear that trust and confidence in the role of the profession is not where it should be and we are supportive of change that enhances audit quality and maintains the competitive position of the UK as we prepare to leave the EU.”
Alongside this, the Financial Reporting Council (FRC), which is responsible for regulating the accountancy sector, is also under review for not being tough enough on the Big Four.
With this shake up underway, it begs the question of what to consider when choosing the accounting firm for your own business. Although regulation may be getting tougher, the principles that influence what to look out for stay more or less unaltered:
- Does the firm specialise in an area of business relevant to you?
- What level of certification do they have?
- Are they transparent about their fees?
- Are their fees reasonable?
Ask friends or business contacts for recommendations. Old-fashioned word of mouth can be as valuable as ever.