Lawmakers in the UK have severely indicted the audit profession even as they call for “ambitious and wide-ranging set of reforms” to “reset our systems of corporate accountability”.
In a 100 plus-page investigation report of the January collapse of the construction group and government contractor, Carillion, two UK parliamentary committees late Tuesday have literally hauled the auditors over the coals.
In a severe indictment, the report said the four firms form a “cozy club incapable of providing the degree of independent challenge needed” for auditing public companies. It added that the lack of competition in the audit market “creates conflicts of interest at every turn”.
Read also: UK looking at a possible breakup of Big Four
In a bid to address this lack of competition and avoid conflict of interest, the report has suggested the breakup of the Big Four audit firms or the separation of the audit and non-audit businesses.
In the case of the Carillion Group which collapsed in UK in January 2018, KPMG were external auditors, Deloitte were internal auditors and Ernst and Young were tasked with turning the company around.
PwC advised the company in various capacities including its pension schemes, but was still the least conflicted of the Four, according to an official release.
“As the Official Receiver searched for a company to take on the job of Special Manager in the insolvency, the oligopoly had become a monopoly and PwC could name its price”, the report said.
Put together by the Works and Pensions Committee and the Business, Energy and Industrial Strategy (BEIS), the report has ramifications beyond UK. It strikes at the very heart of the business model followed by the Big Four so far.
The Big Four were quoted in a story in the business paper, Financial Times as saying that they are contemplating changes already and have planned for business continuity under various scenarios.
Here are some of the key highlights and findings of the report and why it matters for the audit profession all over the world:
The report also criticised the government and regulatory system calling for a systemic overhaul.
Frank Field MP, Chair of the Work and Pensions Committee said: “This is a disgraceful example of how much of our capitalism is allowed to operate, waved through by a cosy club of auditors, conflicted at every turn.”
According to the report, the UK government “urgently needs to come to Parliament with radical reforms to our creaking system of corporate accountability. British industry is too important to be left in the hands of the likes of the shysters at the top of Carillion."
In a 100 plus-page investigation report of the January collapse of the construction group and government contractor, Carillion, two UK parliamentary committees late Tuesday have literally hauled the auditors over the coals.
In a severe indictment, the report said the four firms form a “cozy club incapable of providing the degree of independent challenge needed” for auditing public companies. It added that the lack of competition in the audit market “creates conflicts of interest at every turn”.
Read also: UK looking at a possible breakup of Big Four
In a bid to address this lack of competition and avoid conflict of interest, the report has suggested the breakup of the Big Four audit firms or the separation of the audit and non-audit businesses.
In the case of the Carillion Group which collapsed in UK in January 2018, KPMG were external auditors, Deloitte were internal auditors and Ernst and Young were tasked with turning the company around.
PwC advised the company in various capacities including its pension schemes, but was still the least conflicted of the Four, according to an official release.
“As the Official Receiver searched for a company to take on the job of Special Manager in the insolvency, the oligopoly had become a monopoly and PwC could name its price”, the report said.
Put together by the Works and Pensions Committee and the Business, Energy and Industrial Strategy (BEIS), the report has ramifications beyond UK. It strikes at the very heart of the business model followed by the Big Four so far.
The Big Four were quoted in a story in the business paper, Financial Times as saying that they are contemplating changes already and have planned for business continuity under various scenarios.
Here are some of the key highlights and findings of the report and why it matters for the audit profession all over the world:
The report also criticised the government and regulatory system calling for a systemic overhaul.
Frank Field MP, Chair of the Work and Pensions Committee said: “This is a disgraceful example of how much of our capitalism is allowed to operate, waved through by a cosy club of auditors, conflicted at every turn.”
According to the report, the UK government “urgently needs to come to Parliament with radical reforms to our creaking system of corporate accountability. British industry is too important to be left in the hands of the likes of the shysters at the top of Carillion."