Big Four ditch ‘clients’ for ‘audited entities’by
News that the Big Four have been quietly prompting staff to drop the word ‘client’ when referring to businesses they audit has been given short shrift by the rest of the profession, writes Mark Taylor.
“What’s in a name? That which we call a client, by any other name would still pay as handsomely,” Shakespeare might have said if called in by the Big Four to advise on public relations.
The term “client” is out, and “audited entities” is in, officially, at KPMG, in reference to the businesses it examines.
The directive on the wording has now been issued to staff following a statement at the end of last year by UK chairman Bill Michael.
The rationale behind this, according to Michael, is that the auditor’s true clients are shareholders of the companies under inspection, rather than the directors who appoint them, and the move to update workplace terminology has been made to reinforce that barrier.
PwC, Deloitte and EY have been quietly prompting their audit teams over the last two years to also refrain from using the word “client” without officially adding the request to staff handbooks.
“We recognise the distinction emphasised by referring to ‘audited entities’ and are supportive of that,” Deloitte said in a statement. “However, it’s the overall culture and mindset that is important, not just the wording, and that is where we as a firm continue to be focused.”
Industry experts say the move smacks of misdirection and does little to disprove criticism the firms remain too close to the businesses they audit.
“The Big Four firms excel at the game of obfuscation,” said Prem Sikka, professor of accounting and finance at the University of Sheffield. He said he was told recently that within firms, staff have been told to refer to ‘tax avoidance’ as ‘financial restructuring’.
KPMG, PwC, EY and Deloitte declined to offer comment on this claim.
“None of this will deflect attention away from their predatory practices,” Sikka said. “Imagine, the sea change if instead of spin the firms devoted even half of their energies to improving the quality of audits or doing something socially useful.”
KPMG, Deloitte, EY and PwC dominate the audit market for large firms in the UK, and carried out more than 95% of the audits for FTSE 350 firms last year, according to figures from the soon-to-be-defunct Financial Reporting Council.
Their stranglehold on the market is such that antitrust regulators have stepped in and are in the process of rewriting the rulebook for large audit firms who cross-sell other services to those same clients.
Attempting to foreshadow such a drastic regulatory intervention, last year the Big Four said they would no longer offer consulting and other non-audit services to audit clients.
The move did not go far enough for some, who claim the industry was failing to answer issues over auditor independence and addressing the question of who appoints the auditor and why.
In rewriting their corporate style guides rather than their playbooks, experts said the firms have missed an opportunity to show they have made necessary and lasting changes to their businesses.
"Relationships are key to any service provision," said Rakesh Shaunak, managing partner and group chairman of MHA MacIntyre Hudson. "Whilst we fully endorse the need for independence, dropping the word client goes too far. Referring to ‘audited entities’ makes it sound like an abstract transaction.”