Of course the accounting community wouldn't recognise the social immobility. For the most part they have a vested interest in maintaining the status quo. Turkeys never, ever vote for Christmas, and this is just a mirror of the other professions where the very same issues are at play. Never going to change, where one group of people have much to lose. Creating an illusion and aspiration of social mobility is a veneer and not a solution. Can't imagine why anyone could be surprised at the conclusions. Accounting firms can all express concern at the recruitment problems this may cause them, but it helps keep salaries, profits and bonuses up!
I suppose he should have gone to a tax wizard, instead of using a Muggle!!
I wonder if the TOMS scheme (Tour Operators Margin Scheme), which I believe is also an EU scheme, will be similarly affected. Perhaps it will just be converted into a "UK-only" equivalent, or the UK/EU will wrap it up in some (future) negotiations on how to co-exist after Brexit
"Turkeys" and "Christmas" spring to mind when considering what the audit profession might have to say regarding the future of audit!
I agree with @JDBENJAMIN that it is the management of the business (and the industry), that need to bear most responsibility for such failures. I have written before in this column, that this aggressive financial behaviour is not uncommon, and Carillion were very well known among its competitors and former staff for these behaviours. They have to operate on wafer-thin margins, and when they go after growth, to satisfy the markets and their associated personal/board bonus structures, they inevitably take on more risk, often "unbalancing" their portfolio, towards higher-risk opportunities, where virtually everything has to go right, to achieve the tendered profit margins they set for themselves. Often they miss and hope the good contracts support the inevitable bad ones ("portfolio management"!). The government has its own share of the blame to take, in their zeal for VFM contracts, driving pricing ever-lower. Companies like this probably only make 2-3% PBT, and so, when you push people to the wall, this can happen. The company bear's the lion's share of the blame, for sure, but many different stakeholder groups have some blood on their hands.
To blame auditors alone is crazy. But to say they did nothing wrong in all this, is equally as crazy. They need to probe harder, and when audit and consulting fees might be at risk if they were to do so, then we know where the conversation is likely to end up.
Perhaps some comprehensive type of business failure insurance or schemes across the riskier industries might be of some use, in the event of failures, but again, this would likely only (a) raise costs, and (b) provide an easy "disincentive" to all involved, to work hardest for success and survival.
Not an easy one to solve, unfortunately.
Sorry, forgot to say it should "all of the above" and not any 1 from 3!!
I don't know, but here's a slightly different thought. How about we:
- prohibit auditing firms offering any consulting services (although, I will say, as a "client" there are times when it is highly beneficial to get advice from our auditors, because we have a relationship with them and they know us, our situation and our history, so perhaps we should put some form of value or percentage limit rather than an absolute ban)?
- have a mandatory "X" years rotation requirement (3 or 5 years)?
- prevent any ownership cross-holding by owners of the audit firm of consulting firms (and vice versa), and connected parties, and all forms of ownership structures intended to circumvent such rules, including opaque foreign ownership structures?
I am struck by the old saying that ends with "...cash is reality", and that, in anything but the shortest of terms, only cash profit gives us more coming in than going out. In the longer run, the CAPEX and investment needs to be covered as well. But, I subscribe heavily to the school that says looking to run and grow a business that doesn't make a profit is in-sanity. I don't care too much what business it is, for me that adage holds true. Even for subscription-type businesses where the marginal costs of acquiring new subscribers is likely to be lower than the value they add, the business must surely have to reach a point where fixed and variable costs are covered, or it can't survive long-term. Maybe, if the model is to "grow like hell, and then you sell" you might think a little differently, but it's a very strange proposition to me, as an accountant and business person!
And there was me thinking it must have been a term introduced in IFRS 15!!!!
Appalling. This feels rather like Reynard The Fox going on TV to push the publishing of his best selling cookbook of chicken recipes!!!
People who preside over such corporate failures must surely be stuck off from being a director of major companies, or even involved in the running of them, in such ways as committee members (via being a NED or even "co-opting") for periods running up to decades. Of course, the whole game is rigged, when their university buddies are in regulatory, government and accounting firm senior roles. So, the revolving door just revolves once more, and they come back, in another guise, as you have noted!