Audit firms should ditch sales culture

UK watchdog flags up concerns.

I have no problem with audit firms providing some consulting services to audit clients provided it does not impair an auditor’s independence but there’s one thing that grates me about the audit profession. It’s when firms use audit as a lead-in to sell more lucrative consulting services. What is icing to this distasteful cake is when audit staff are praised for their role in winning consulting work.

This month, a UK watchdog responsible for checking the quality of audit firms released inspection reports of a few larger firms, flagging concerns PKF and Mazars had been praising and/or rewarding audit staff that successfully sold ‘non-audit’ or consulting services to audit clients. There reports apply to inspections carried out in 2010.

In the PKF report, the AIU warned the firm should: "Ensure credit is not sought or given in appraisals for success in selling non-audit services to audited entities."

In the Mazars report, it was recommended the firm: "Ensure that staff and partner remuneration and evaluation decisions do not reflect success in selling non-audit services to audit clients… [and] there is greater focus on audit quality indicators in appraisals for audit partners and staff."

To single out Mazars and PKF based on one inspection report is unfair. Rumours about auditors up-selling consulting have been rife for many years. Consulting is more lucrative and less labour intensive than audit, and firms all over the world, particularly the Big Four – PwC, Deloitte, Ernst & Young and KPMG – are beefing up their consulting arms like never before.

The problem with firms providing too much consulting to audit clients is the fear that they become reliant on that revenue and it will affects an auditor’s ability to exercise professional judgement. There’s also the argument that auditor’s might feel uncomfortable auditing a colleague’s consulting or tax work.

Although most consulting services are prohibited to audit clients, firms are still earning a significant amount of revenue from this practice. In 2011, PwC UK earned £363m from non-audit services to audit clients, which is about 40 per cent of the fees it earns from audit, while Deloitte made £185m, which is 36 per cent of its audit revenue.

The independence of auditors is a big issue for the accounting profession because, rightly or wrongly, questions are being raised as to why auditors gave a clean bill of health to banks such as Lehman Brothers just before they collapsed.

The EC has proposed radical reforms that could force the largest accounting firms in Europe to break up their audit businesses from advisory and tax. If such a proposal were to pass into law, it could threaten the existence of the four major brands – PwC, Deloitte, Ernst & Young and KPMG – although intensive lobbying from the ‘Big Four’ should derail this idea.

Nevertheless, auditors of all sizes could make their lives a whole lot easier if they ditched the sales culture and focussed on ensuring their clients accounts are in check, rather than worrying about their own.

Arvind Hickman is the editor of the International Accounting Bulletin.

Photograph: Getty Images

Arvind Hickman is the editor of the International Accounting Bulletin.

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If Seumas Milne leaves Jeremy Corbyn, he'll do it on his own terms

The Corbynista comms chief has been keeping a diary. 

It’s been a departure long rumoured: Seumas Milne to leave post as Jeremy Corbyn’s director of communications and strategy to return to the Guardian.

With his loan deal set to expire on 20 October, speculation is mounting that he will quit the leader’s office. 

Although Milne is a key part of the set-up – at times of crisis, Corbyn likes to surround himself with long-time associates, of whom Milne is one – he has enemies within the inner circle as well. As I wrote at the start of the coup, there is a feeling among Corbyn’s allies in the trade unions and Momentum that the leader’s offfice “fucked the first year and had to be rescued”, with Milne taking much of the blame. 

Senior figures in Momentum are keen for him to be replaced, while the TSSA, whose general secretary, Manuel Cortes, is one of Corbyn’s most reliable allies, is said to be keen for their man Sam Tarry to take post in the leader’s office on a semi-permanent basis. (Tarry won the respect of many generally hostile journalists when he served as campaign chief on the Corbyn re-election bid.) There have already been personnel changes at the behest of Corbyn-allied trade unions, with a designated speechwriter being brought in.

But Milne has seen off the attempt to remove him, with one source saying his critics had been “outplayed, again” and that any new hires will be designed to bolster, rather than replace Milne as comms chief. 

Milne, however, has found the last year a trial. I am reliably informed that he has been keeping a diary and is keen for the full story of the year to come out. With his place secure, he could leave “with his head held high”, rather than being forced out by his enemies and made a scapegoat for failures elsewhere, as friends fear he has been. The contents of the diary would also allow him to return in triumph to The Guardian rather than slinking back. 

So whether he decides to remain in the Corbyn camp or walk away, the Milne effect on Team Corbyn is set to endure.

 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.