Auditors make their move but their homework needs checking

Compiling a list of all the scandals, cock-ups and mistakes that auditors have been implicated in over the past decade would take up more space than this column allows. Even a high bar for only the most catastrophic would still require us to pursue the errors in the audits of Patisserie Valerie, Conviviality, Carilion and Rolls-Royce.

It was in that context that politicians put the big four squarely in their sights. Their complaints boiled down to two essential frustrations: one, a lack of competition in the market and two, the potential for a conflict of interest when the audit function of an accountancy firm runs up against the more lucrative consulting and deal advisory side. We were told to expect an audit reform bill, which would force the hand of the big four. Whilst the idea is not dead, legislation is now very much on the backburner – so the question is what next.

The firms themselves appear to have the answer, independent of further political action. EY are said to be mulling a spin–out of its audit business, going further than the ring-fencing that many had called for, similar to that which occurred in the financial services sector after the global crash in 2008. KPMG, meanwhile, is set to cut down the number of audits it undertakes to ensure a higher quality of work on those that it does – a decision that will have become easier after a string of recent fines for shoddy work.

Both moves signify a sector which has grasped the extent of the business and political world’s frustrations. Other large consultancy firms will be looking at EY’s potential separation with interest, laying out a possible path for them too should they wish to get political pressure off their back.

Audit has plenty of work to do to repair its reputation. Those firms that are moving ahead with those efforts deserve credit.

But if we’ve learnt one thing from the past decade, it’s that it pays to check auditor’s homework. Let’s hope this isn’t window dressing.