Logos for the accountants PwC, KPMG, EY and Deloitte. Pic: BBC

Big four accountants scrutinised after Carillion and other debarcles

Following the collapse of Carillion and other high profile business names the so-called big four accountancy firms involved in auditing companies which then go broke are being scrutinised by the Competition and Markets Authority (CMA).

A report by the House of Commons business committee has also called for changes to the way accountants PwC, KPMG, EY and Deloitte have failed to pick up on the fragility of companies like BHS and Carillion. Their failure has cost jobs and millions of pounds in unpaid invoices to companies who supplied collapsed enterprises.

ProfessorPrem Sikka of Sheffield University writing in the Guardian said: “What do BHS, Carillion, Conviviality, Quindell, Aero Inventory, the Co-opBank, and London and Capital Fiance do have in common? They were all audited by the big four accountancy firms – PwC, KPMG, EY and Deloitte – which audit 97% of FTSE 350 companies and collect 99% of audit fees. In each case, these firms collected huge fees and delivered little of any public value. Their failure to spot the fragility of those businesses resulted in the loss of jobs, savings, pensions and tax revenues.

“Yet the victims of these failures have no legal recourse to seek compensation because auditors owe a “duty of care” only to the company that hires their services, not to any individual stakeholder or creditor.

“Despite their inability to spot the flaws in the financial statements of banks which led to the 2007-08 financial crash, the auditing industry escaped meaningful reforms. After the BHS and Carillion failures, the government passed the buck to the Competition and Markets Authority (CMA). Yet its long-awaited report, published this year, fails to address the fundamental issues about competition or audit quality.”

The professor of accountancy wrote that the CMA wants an ‘operational split’ of the big firms, that is, audit and non-audit arms need to be separated internally by Chinese Walls. She said: “Instead of an operational split, a ‘structural split’ is needed. Under this, audit firms would do audit only, and neither the firms nor any of their associates would be permitted to sell any form of consultancy to audit clients.”

The system clearly needs to be reformed with more firms in the High Street in trouble otherwise the tax payer and the troubled companies’ supplier and staffs could end up footing the bill.

By joining ICSM members get a heads up of problem firms such as Carillion. It is one of the best ways of not being caught out when these giants collapse taking with them some of their suppliers.

For details on joining ICSM call 0844 854 1850 or visit the website www.icsmcredit.com or email Ian at Ian.carrotte@icsmcredit.com