Achieving a high standard of audit quality builds trust and confidence in the audit profession.
The quality of audit engagement has been a great concern among various stakeholders in recent past. Regulators, standard setters, profession bodies have been putting in place difference frameworks from one time to the other in ensuring the achievement of audit quality. For instance, ISQC1 has gone through difference updates and IAASB has issued various international standards on auditing to ensuring the quality of audit. With all these efforts, the global economy is still not immune from number of spectacular business failure, the recent be Carillion, a global construction company.
The stories of WorldCom and Enron and their auditor, Arthur Andersen (2001) is still very fresh in our memory; we are still in shocked from Refco and Grant Thornton LLP (2005); Northern Rock and PwC (2008); Parmalat and Grant Thornton and Deloitte Touche Tohmatsu (2004) relationship.
Specifically, Parmalat, the Italian food and dairy company, sued its two former auditing firms, saying that they should have detected the fraud that caused the collapse of Parmalat earlier in the year. The company contended that two partners of Grant Thornton's Italian arm were involved in the fraud, and that Deloitte Touche Tohmatsu failed to follow proper auditing procedures that would have uncovered the fraud far earlier than it was found.
Looking at all these celebrated corporate failures, it could be concluded that most of auditors are big four. Could we then conclude that big four synonymous to corporate failure? Disturbed by the trend of the events, the quality of service by the so call big four has been put into question. Thus, political office holder such as parliamentarians have renewed the calls for an overhaul of the audit industry in their jurisdictions. Also, some concerned authorities have lunched enquiries into role of big four in domination of audit services. For instance, the competition authority in Britain launched an investigation into whether the dominance of the big four accountancy firms is driving down auditing standards due recent collapsed of Carillion.
The oligopoly nature of big four has been equally be questioned as KPMG chair calls Big Four an ‘oligopoly’ after Carillion collapse just as British MPs have demanded the UK's big four accountancy firms be referred to competition authorities for potential break-up following the collapse of government contractor Carillion, calling them a "cosy club incapable of providing the degree of independent challenge needed"
The recommendation by members of two powerful parliamentary committees was contained in a damning 100-page report on Carillion's failure, which also accused the government, regulators and Carillion board members of failing in their responsibilities, often because they acted "entirely in line with their own personal incentives.
The joint selects committee’s claims of auditor failings in its report on the collapse of Carillion marks a ‘watershed’ for the accountancy profession according to the head of the ICAEW, with the Big Four firms also acknowledging that the statutory audit market needs reform. Although Deloitte was Carillion's sole internal auditor, all three of the other big four did work for the group, with KPMG serving as external auditor, EY providing turn round advice and PwC advising the company, its pension schemes and the government.
The report called on the government to refer KPMG, EY, PwC and Deloitte to the Competition and Markets Authority for potential break-up, or splitting the firms' audit functions from non-audit services. Meanwhile, KPMG is already under investigation by the UK's accountancy regulator for its role. The above left us with question: can the world of accountancy ever produce quality audit and free from corporate failure with the dominance of big four?