UK regulators may be on the verge of doing something right, but doubts remain over how genuine their stated intentions are.
Following a string of corporate scandals and collapses, the UK’s top accounting regulator, the Financial Reporting Council (FRC), has called for an inquiry to explore the possibility of breaking the audit arms of the Big Four accounting firms — KPMG, Deloitte, Ernst & Young, and Price WaterhouseCoopers — into separate pieces. The Competition and Markets Authority (CMA) should look into the possibility of “audit only” firms in a bid to enhance competition in the sector, said FRC chief executive Stephen Haddrill.
There’s a strong case to be made for taking such drastic action. Having extended their tentacles into just about every facet of business administration, from accountancy and auditing to legal and tax consultancy, while wiping out or gobbling up many of their smaller rivals, the Big Four firms have grown horrendously large and conflicted.
Time and again they have signed off on accounts that were demonstrably faulty and allowed the management of large companies all over the world, such as the UK’s Carillion, Spain’s Abengoa, Japan’s Olympus, and the UK’s two biggest banking failures, HBOS and RBS, to mask the true state of their financial health. In the case of Spain’s Abengoa, its auditor, Deloitte, was seemingly unable to detect blatant flaws in the company’s accounting that were flagged up a year earlier by a 17-year old student with only “basic secondary school knowledge of economics”…