Next Arthur Andersen? No, the “Final Four” audit firms are “too big to replace.”
As the rubble from the financial collapse of British infrastructure giant Carillion gradually settles, two powerful parliamentary panels are piling pressure on the world’s biggest audit firms to disclose the full extent of their involvement with the company. The big four auditors — Deloitte, Ernst & Young (EY), KPMG, and PricewaterhouseCoopers (PwC) — have receivedletters from the Business and Work and Pensions select committees demanding that they reveal all the work they carried out for Carillion since 2008.
The move comes amid growing concern around the world about the power of the so-called Big Four — down from the Big Five after Arthur Andersen imploded in the wake of the Enron scandal — and the potential conflicts of interest that can arise between their myriad roles.
A case in point: when Spanish authorities tried to roll seven failed or failing Spanish saving banks into Bankia in 2011, Deloitte was hired not just as Bankia’s auditor but also the consultant responsible for formulating its accounts, in complete contravention of the basic concept of auditor independence. Deloitte (together with Spain’s market regulators) then confirmed in Bankia’s IPO prospectus that the newly born franken-bank was profitable and in sound financial health. It was a blatant lie. Bankia collapsed within less than a year of its IPO. Shareholders ended up losing billions and were later reimbursed by Spanish taxpayers.
In the case of Carillion, all four of the Big Four provided services of some kind or another to the now defunct company, but it was Dutch-seated KPMG that signed off on its accounts…