Big Four’s Extensive Carillion Work Sparks Calls For Action

Madison Marriage

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New disclosures from the UK’s “big four” accounting firms have demonstrated the extent of their work for collapsed contractor Carillion and sparked fresh calls to tackle their market dominance.

PwC, KPMG, EY and Deloitte collectively earned £71m from work for Carillion in the past 10 years, according to figures provided by the firms to two government committees investigating the collapse.

The disclosures, published on Tuesday, highlight the large number of contracts each of the four had with Carillion, for services from advice on cyber security breaches to guidance on capital raising, audit, acquisitions and pensions.

Karthik Ramanna, a professor at Oxford university’s Blavatnik School of Government, said the figures demonstrated the need to reduce the dominance of the firms. “It’s very difficult today if you’re a large company to find an accounting alternative to the Big Four. It’s a classic oligopoly situation,” he said.

“We need a serious investigation into why there is so little competition in the market for listed companies. We don’t have the same issue with law firms.”

Among the eye-catching disclosures was that KPMG — Carillion’s external auditor since 1999 — was paid £157,000 last year for providing accounting services for a potential rights issue that never happened.

Deloitte, the company’s internal auditor since 1999, charged £54,000 in 2015 to “manage a data breach”. It also charged £554,000 over three years to conduct a “market sizing exercise” to assess the potential of a new product.

Between July 2017 and January 2018, EY charged nearly £11m for an initiative called “Project Ray” that aimed to radically reduce Carillion’s costs. EY is owed another £2.3m for work on this project. In previous years, it earned more than £1m for advice on tax, acquisitions and investigations.

The firms were asked to submit detailed summaries of their work for Carillion after the company went into liquidation last month holding just £29m of cash and with more than £1.5bn of debt.

Its collapse has raised questions about the quality of the advice Carillion received in the years before its collapse and about conflicts of interest among auditors.

Concerns have also been raised about PwC’s role as advisers in the liquidation process given it is also advising Carillion’s pension trustees, who are among the company’s biggest creditors.

Erik Gordon, a professor at the University of Michigan’s business school, said there were serious questions about why these firms continued to dominate the market for audit and non-audit services.

“The myth should forever be punctured that it is worth paying tens of millions to Big Four firms because they are the only ones capable of auditing complex organisations effectively enough to protect investors, taxpayers and pensioners. The two assurances that Big Four firms reliably provide are [those] of high fees and of exuberant denials of responsibility.

“The [government’s liquidator] should bring in a non-Big Four firm instead of relying on a Big Four firm that could be tempted to gloss over its prior role with the company.”

Last month Stephen Haddrill, the head of the UK accounting watchdog, told MPs he would ask the Competition and Markets Authority to consider another investigation of the audit market in the wake of Carillion’s collapse.

PwC said: “While there are only four large professional services firms, the market has been subject to extensive review by [competition watchdogs]. We comply with all rules that have resulted from these extensive reviews.”

KPMG said: “We are committed to building public trust in audit. We take the questions that have been asked of our profession in recent weeks very seriously.”

EY and Deloitte declined to comment.

Source : https://www.ft.com/content/e67793a4-10e2-11e8-8cb6-b9ccc4c4dbbb

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