Finance Monthly November 2019 Edition

Clients Dissatisfied Despite not improving their performance, the Big Four are set to maintain the top tier stranglehold in the auditing sector, which is strange because a study by Source Global Research found that although over two- thirds (68%) of audit clients still rank a Big Four firm as their go-to external auditor, over half (58%) do not name their current auditor as their first choice. In the US, there are reports of the Big Four bungling 31% of their most recent audits, as analysed by the Public Company Accounting Oversight Board (PCAOB). The data shows that in 2019, Deloitte bungled 20% of audits examined, PwC bungled 23.6%, EY bungled 27.3%, and KPMG bungled 50%. For what is expected of the Big Four, falling short of near-perfect is a bad image, so missing the mark on 31% of audits could be considered poor performance for the top firms; firms which are paid and are growing as if they were truly the best of the best. (See Fig 1) According to The Independent, Stephen Haddrill, the FRC’s chief executive, said: “At a time when the future of the audit sector is under the microscope, the latest audit quality results are not acceptable. “Audit firms must identify the causes of their audit shortcomings and take rapid and appropriate action to improve quality. Our latest results suggest that they have failed to achieve this in recent years.” So are the audits that were surveyed by both the UK and US watchdogs actually botched or bungled, or are the firms simply not as good as everyone thinks they are? Are the Big Four really still the best? Based on what we’ve looked at, it is apparent that action should be taken, and further regulation implemented, while large companies should start considering the auditing and accounting services of smaller consultancy firms and perhaps then the status quo on the Big Four will change. of FTSE 100 companies are now on the books of a Big Four auditing firm 100% control of in terms of number of clients 95% 96% in terms of market capitalisation Compared with the FTSE 250, where the Big Four have: & Source: Adviser Rankings Ltd 68% of audit clients still rank a Big Four firm as their go-to external auditor. 58% do not name their current auditor as their first choice. Source: Source Global Research Amount of bungled audits in 2019: 50% FACTS & FIGURES Source: Public Company Accounting Oversight Board (PCAOB). 20% 23.6% 27.3% 13 www.finance-monthly.com FRONT COVER FEATURE - THE BIG FOUR