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Accountants: Government to break up dominance of Big Four firms - BBC News

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Jason Croke
By Jason Croke
18th Mar 2021 10:42

This has been suggested several times before, wish they'd just get on and do it.

This may open the world of audit to the mid-tier top 15 Accounting firms but not sure if even the top 15 would have the capacity to take on multi-national audits at the same pricing level that the big 3 can churn it out for.

What does "make their audits more rigorous" actually mean? If they mean being able to spot a £250m blackhole in Tesco's accounts then that's not really "more rigorous " to me, they mean "do it properly".

I'm not an Accountant, but these scandals always seem to me that the audit process can't cope with the highly complicated moves that big firms implement to keep their shares or profit high, for example, Carillion, March 2017 the accounts are published, June 2017 saw dividends of £79m paid out and then come July 2017, issued a profit warning after writing down £1b of contracts. Don't tell me nobody saw that was coming, did the tax advisory side of the business not know about these write downs, did nobody sense check the future forecasts?

That, to me, is where the problem lays, a narrow view under the auspices of "audit" and not looking at the wider picture/factoring into the audit. Maybe there should be a longer forward look element to an audit (ie, going concern this year but at risk 2 years from now because of x or y" .

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By birdman
18th Mar 2021 11:20

My take on audits is that they start with the premise that everything is correct, then look for evidence to support that theory. Until they become truly independent (imposed by a third party rather than appointed by the Company being audited) I can't see anything changing - in theory that's HMRC's role, but they don't have the resources to do that for every Company.

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Replying to birdman:
Red Leader
By Red Leader
18th Mar 2021 11:22

I agree. Independence is the real issue here. A pays B to report on A.

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Replying to Red Leader:
By paul.benny
18th Mar 2021 11:50

Have you any suggestions on how to address this apparent conflict of interest? Auditors of Public Interest Entities (PIEs)* are already prohibited from providing other non-audit services. This prevents the lure of other fees influencing audit opinions.

*PIEs include all listed companies together with banks and insurers. The scope is in the process of being widened further.

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Replying to birdman:
paddle steamer
18th Mar 2021 11:33

They do appear to cope reasonably well with the transactional forms of tests,
say controlling the opening of a new supplier on a system etc. Absent collusion the diversion of monies, hidden bank extra accounts etc side seems pretty limited.

Where they do appear weak is say valuing contracts, future revenue recognition etc, the more subjective areas re future events where direct ticking evidence is not available and judgements are required.

Maybe there is something wrong with the qualification, maybe auditors need more MBA type training rather than more traditional audit training, maybe they need to have run a business to be able to audit one, but it does seem to be these sorts of areas that catch them out.

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By paul.benny
18th Mar 2021 11:43

When there is a company failure or a significant restatement of accounts, there follows a chorus of 'where were the auditors?'

Let's not forget that the financial statements are first and foremost the directors' responsibility - as both the audit report and directors' report spell out.

As all of us who've been through the training know, 'the auditor is a watchdog not a bloodhound'. Aside from outright fraud/theft (Patisserie Valerie) , the high profile cases (Carillion, Tesco) arise from questionable management judgement. It's been fashionable over recent decades to link director bonuses to share price performance - giving them a strong incentive to manipulate the numbers for personal gain.

Certainly audit quality could be improved. The reports into BHS make that clear. But even there, the business had been bled dry by Philip Green before it was offloaded onto Dominic Chappell.

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By Paul Crowley
18th Mar 2021 16:39

Are smaller firms likely to be able to take up the slack?
Probably as those leaving the 4 move down a step but do all the work exactly the same.

No change in reality
Just a change in perception

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