Are auditors still under-estimated?

Josh Rufus our consultant managing the role
Author: Josh Rufus

Decades ago accountants were seen as monotonous but useful professionals in the strengthening capital world. However, that has slowly but surely changed over the past forty years. Partners at Big Four practice firms, whose salaries vary from £600k - £1m per year, are more likely to be seen as more voracious than most front office traders at Goldman Sachs!

The Big Four in the spotlight

In a recent turn of events the spotlight has been put on the Big Four and not in a good way. Top four auditors have failed many high profile companies (Carillion being the latest) leading to MPs calling on tighter regulations. Rachel Reeves, chairwoman of the business select committee, said last month after questioning KPMG, Carillion’s auditor, said: “Audits appear to be a colossal waste of time and money, fit only to provide false assurance.”

PWC is the latest firm to come under fire by MPs with one of them famously asking the PWC partners (who admitted that they had not yet done the work to answer one of his questions): “What does £20 million buy you these days?” after charging the government £20.4 million for the three months work it had done on liquidating Carillion.  

The quick fix attempt

The frustration has led to policies being changed but this has not stopped opinions wondering whether this is another quick fix attempt to satisfy the electorate as well as Westminster. Stephen Haddrill, chief executive of the Financial Reporting Council, which regulates the profession, seems to have gone back on his word saying that he now believes it may be time to carve out the audit department. This shift in attitude is likely to be met with resistance from the top consultancies as it would take a great deal of money and many years to implement. 

It has been only four years since the last review which led to minor changes in policy leading many to believe that a similar move is more likely than meaningful change. However, there is one thing many people seem to agree on: something has to change! “Unless something is done about it we’re not going to have an audit profession worth its name in ten years”. Those were the words of Michael Izza, chief executive of the Institute of Chartered Accountants in England and Wales

The current market

Top 250 companies have been somewhat limited in their choice of who they would use to advise/audit them due to the potential risks associated with a less known brand. Many people seem to have perceived this as the Big Four trumping many smaller firms, leading to some of the latter practice firms choosing to pull out of serving listed companies to concentrate on the small to medium sized market. Smith & Williamson is a prime example in Britain, reducing their number of firms to just 34, this is down from 50 two years ago.

One thing is for certain, an auditor’s work is best performed when they act completely independently which becomes difficult when they need to make recommendations which may go against what a colleague is advising to the business. Many believe that separating the role of an auditor from the rest the accountant/advisory role is many years overdue. Auditors should be completely independent of clients, bankers and shareholders of companies.

How much of it sticks?

So, is there much substance in all this? The answer, in my opinion, is yes and no. In my dealings with the Big Four (and the smaller consultancies) – they add a great deal of value to a business. On the flipside, there have been many unsuccessful cases which, helped by the media hype, have attracted more attention than the successful work these firms deliver systematically. The audit world has changed but the stigma in many cases remains. Similar to every other profession there are two sides to every story but unfortunately the grief which auditors usually get is unjustifiable in my opinion.

We need to realize that auditors are an integral part of a business; we know that good auditors get paid handsomely and that’s because 99% of the time they produce fine quality work. They make a real difference in controlling and managing risk. Long gone are the days where auditors were seen as the police of an institution who walk around with a checklist. They need to have in depth knowledge of the business area they are auditing as well as the technical and entrepreneurial skills to think out of the box when looking for key risks. Furthermore, they partner up with stakeholders to become a key player in the team’s success whilst maintaining their independence. After all, it was lack of proper auditing which sent the world into meltdown in 2007!

View our opportunities in audit here. 

03/04/18
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£40,000 - £50,000

Qualification

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