Leaky big four accounting firms: Heal yourselves

Leaky big four accounting firms: Heal yourselves

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It is not yet a revolution but stakeholders are chafing against the spate of audit inefficiency especially by the world ‘Big Four’ Accounting Firms (Deloitte, PwC, KPMG and EY). In 2018, they had a combined revenue of approximately one hundred and forty-eight billion US dollars and over one million staff across the globe. Over the years, a long list of scandals has battered the image and sense of value of the Big Four. It has been a case of moral and ethical famine such that discussions about the future of the Big Four are no longer one of intense fascination but of despair and frustration. As the leaky bucket of integrity drips, it seems only a few stakeholders still maintain an optimistic view of the future of the Big Four- those who believe that things will get better and those who maintain bright outlook because the non-Big Four firms do not offer any viable alternatives worth considering. But for the majority of stakeholders, there is nothing good anymore to be expected from Nazareth of the audit profession.

The question, really is, are the so-called ‘the Big Four’ accounting firms really ‘big’ in the classical sense of the word? Are they not actually networks of local firms in various jurisdictions that have a claim to a common brand and exploiting that brand status to be of some disservice to the public interest? No wonder, some stakeholders are of the view that it is becoming evident that it might be better having small excellent firms than big mediocre ones in the audit market.

There is no organization righteous in the earth that keeps doing right things and does not sin. But, where supposedly renowned audit firms are leaky in quality and guilty of other serious malfeasances, then breach of trust is inevitable. There is ample evidence that each of the Big Four firms has had some fingers in the pie of audit inefficiency at one level or the other and consequently, their outsize influence in the audit market is peeling away. They are fast losing the steely eye gaze over which they once prided themselves and could be headed for extinction. The malfeasances of the Big Four are a legion. For instance, one of the Big Four accounting firms was criticized in 2018 for signing off the accounts of Carillion and was also fined for misconduct in the sordid audit of Ted Baker in addition to charges imposed on Partners for stealing confidential information in the US. What of its audit of the Gupta family in South Africa! It would certainly take the firm some time to crawl out of the hole it dug for itself except it does something that would result in a ‘wow’ reaction from stakeholders.

Another of the Big Four firms had its affiliate in Japan shut down sometime in 2007 and its Indian affiliate banned for two years from auditing clients. The same firm was fined recently over its weak handling of the audit of Redcentric Plc. Yet, another of the Big Four was also fined not long ago over the poor audit of one of the units of Serco Group Plc. Also on records is the misconduct of violating rules of independence by yet another member of the Big Four. The same firm audited the accounts of Tech Data and was found to have fallen short of required standards and was fined heavily as a consequence. These portmanteau of misconducts are not edifying and no cheering news to the investing public. Even though empirical evidence suggests that corruption and incompetence are reasons for poor audit exercise, stakeholders do not want any error or fault or evidence of corruption in any audit engagement as long as auditing, is first and foremost, an exercise in morality.

While errors and misjudgments cannot be totally eliminated in the course of an audit exercise, it is important, however, to free stakeholders of the misconception that all errors and misjudgments can be attributed to deliberate acts of omission and corruption. The audit profession is not a portfolio of crooks but a mixed bag as in other professions. Many of the failed audits that have resulted in heavy fines may just have arisen due to a series of unconsciously biased judgments and not deliberate acts of criminality. Nonetheless, no matter how auditors screw up their eyes to look at clients’ records, the trend of poor quality auditing will continue as long as the responsibility for reporting on own performance rests with the boards and management of organizations. The board and management of organizations know where the ‘ills’ are domiciled in their organizations and they peep while the auditors try to unravel them. Besides, auditors have ‘good’ reasons to remain in the affection of the clients such that even the most honest and contentious among them can unconsciously fail in their duties.

The audit market is a rich ground for self-serving biases as at today and consequently, formalism in the context of applying Auditing Standards (national or international, low or of high quality) is not sufficient to reverse the trend of failed and failing audit engagements. Unfortunately, the narratives about Auditing Standards being of high quality has been taken to ludicrous proportion such that (i) the auditor is denied the role and sense of personal and professional responsibility in the discharge of his legal and imperative duties and (ii) the existence of biases which grow deeper as the auditors and clients become very intimate is not given due recognition. This calls for fundamental changes in the way audit is carried out. But until such changes have been effected, having  auditors to truly serve the public interest will remain largely a mirage.

 

Francis .O Iyoha

 



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