The Carillion case is just one example in a string of alleged transgressions lighting a fire under the major audit firms, as British policymakers finally confront the need to crack down on the industry. KPMG is still haemorrhaging clients and staff after its extremely controversial work for the Gupta family in South Africa, whose close ties to former President Jacob Zuma have led to allegations of corruption and “state capture“.
Among the firm’s numerous other scandals, KPMG executives are accused of cheating on inspections of its audits by stealing regulatory information and accepting leaked intelligence. Almost laughably, senior auditors are also alleged to have hacked the passing scores to their own ethics exams, allowing them to “pass” with marks as low as 25%. A survey of KPMG employees indicated that while many felt the latest crisis was only par for the course for the firm, others had become embarrassed to work for the company following these ethical violations.
Unfortunately, KPMG’s troubles are not unusual in the industry. As an industry, the Big Four have thrived by devising creative ways for its high paying clients to avoid taxes and rubber-stamp questionable corporate plans, all while pretending to be neutral, technical arbiters. A permissive legal environment with flexible rules regarding how auditing should be conducted has only contributed further to the success of the group.
Look no further than the recent firestorm EY has raised in Spain, where the firm stands accused of undervaluing assets to the benefit of Mexican billionaire Carlos Slim in the case of real estate firm Realia. EY managed to effectively endorse an obscure accounting method that, by undervaluing Realia’s assets by up to nine times, has allowed Slim to expand his ownership of the company at discounted rates. In the hopes this process can be stopped, minority stakeholders have notified national authorities.
Meanwhile, Big Four brother Deloitte is now in hot water regarding a number of cases in Africa….
Earlier this year, the British House of Commons Business Committee called on the competition watchdog to aim for a “full structural break-up” of the Big Four. Under the circumstances, it is hardly surprising that UK policymakers are calling for an end to the cozy club—or at least for it to be more adequately regulated.