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Audit firms’ consulting creep

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Figures published this month in Accountancy Age, however, tell a very different story. Strong fee growth has pushed all of the consulting arms of the Big Four audit firms back into the top ten of UK consultancy organisations.

As these figures show, having divested many of their consulting divisions following scandals such as Enron and the resulting collapse of Andersen, the remaining Big Four have aggressively reinvested in building up their consulting practices. All conflicts of interest have been forgotten.

The premise behind why things are different this time is that they plan to sell consulting exclusively to non-audit clients. However, recent research by the Financial Reporting Council confirms that non-audit fees paid to auditors in the FTSE 100 are actually rising again, and 23 per cent more FDs of listed companies have reported a rise rather than a fall.

Although concerning, this is hardly surprising. Learning curves are shorter and the cost of sale is lower when the Big Four sell consulting to their audit clients, creating strong financial incentives for them to do so. However, such incentives unconnected with auditing risk compromising the integrity of impartial audits for obvious reasons.

Now safely protected behind newly created Limited Liability Partnership structures, and with more pricing power than ever in a smaller oligopoly (after the collapse of Arthur Andersen), audit firms are once again making consulting hay from their audit sunshine relationships.

The experiment in auditor self-regulation has failed. If we are to prevent history repeating itself, it is now time for the regulator to act to limit the advisory services provided by the Big Four audit firms.

Richard Pile is UK managing director of specialist financial management consultancy Parson Consulting.

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