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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“Anyone can do it, I promise you!”: meet the BBC’s astronaut-ballerina

Why science needs to be more open to women, minorities - and ballet.

Whether dancing on stage with the English National Ballet or conducting an experiment for her PhD in quantum physics, 29 year-old Merritt Moore often appears a model of composure. But in last Sunday's opening episode of BBC2's Astronauts: do you have what it takes? we got to see what happens when high-achievers like Merritt hit breaking point.

Merritt is one of 12 candidates attempting to win the approval of Chris Hadfield, former commander of the International Space Station. Along with her fellow competitors, who include mountaineers and fighter pilots, the dancer has had to face a series of gruelling tasks designed to measure her potential to operate well in space; from flying a helicopter, to performing a blood test on her own arm.

Many of these tasks left Merritt far outside her comfort zone. “I’ve only failed my driving test three times and crashed every car I’ve gotten into - but I think helicopters are different?!” she joked nervously before setting off to perform her first-ever helicopter-hover. Yet after a shaky start, her tenacious personality seemed to pull her through. “I’m good at being incredibly persistent and I don’t give up,” she told the space psychologist when asked to name her strengths.

Merritt also believes it is persistence (and hours of practice) that have allowed her to excel in two disciplines which are typically seen as requiring opposite traits: ballet and science. While studying for her PhD at Oxford, she has continued to perform as a professional dancer around the world. It's a stunning feat by any measure, and when I talk to her on the phone this weekend I ask whether it’s only possible because she’s some kind of genius? “No!” she exclaims, with a winning mix of genuine shock and self-deprecation. “I’m as far from a genius or a natural dancer as you can get - everyday I just feel like flailing mess! My thought process is that if I can do it anyone can do it, I promise you!”

But there is one thing that Merritt thinks might be holding back others from pursuing a mixed career like hers – and that’s the way the scientific world is run.

“They kind of self-select themselves,” she says of many science-professionals she’s met. "You get some people who are not incredibly understanding of those who perhaps approach [physics] in a different way, or who need a different type of schedule," she says. "They look down on people who are different from themselves, which is really difficult; I think that’s why women have difficulties, and I think that's why minorities have difficulties."

A report from the Royal Society on Diversity in Science would appear to support Merritt’s conclusions. It showed that women are significantly underrepresented in senior scientific roles, and that black and minority ethnic graduates are less likely to go on to work in science than their white peers.

So how can these trends be reversed? For Merritt the answer lies as much in schools as it does with targeted scholarships and support groups. Science education needs to be re-branded, she says, so that thinking creatively is actively encouraged from a young age; “It makes no sense to divide it up and say everyone either has an analytic mind or a creative mind." Simply leaning a set of very technical facts from a textbook drives her “bonkers” - but “when there’s passion behind something then anything is possible.”

If she could one thing about physics education, Merritt says she would switch things up so that the “exciting bits” get taught first - such as the latest thoughts on quantum computing or DNA repair. Then if students do choose to continue, they’ll know why they need to study the boring, rigorous parts too. “You’re like right, I need to learn about a harmonic oscillator because that’s how I’m going to understand this quantum computer.”

More cross-fertilisation between science and arts could also help the ballet world, she believes. “I can visualise my centre of mass, how gravity is working on different parts of my body, and how the torque effects my turns – and I think that’s a massive help,” Merritt says of her dancing.

But that’s far from all. When performing she often finds herself thinking about the more bizarre and “mind boggling” sides to physics: “Why is there all this dark matter in the Universe? What is that?! - when that’s going on in my mind, my legs become free because it means I’m not thinking about whether I look bad, or if something is right or not. I’m just inspired - and I want my dancing to be inspiring rather than self-critical all the time.”

Focusing on actions rather than self-image was definitely something Merritt's parents encouraged from a young age. Her dad’s work as an entertainment lawyer in LA meant he was particularly alert to the stereotypes that were being laid on young girls. And, as a result, Merritt and her sister grew up without TV or fashion magazines. Her dad was even initially worried about the mirrors in ballet classrooms

But self-criticism is also very hard to avoid when your antics are being broadcast to the nation on Sunday night TV.

“When you see yourself on screen you just feel incredibly vulnerable,” she says, “they are getting the raw emotions of how you’re reacting to stuff that you’ve never done before in your life!”. What Merritt’s episode one journey showed however, is that knowing yourself makes it easier to bouceback from nerves and self-doubt. And that perhaps more of us should be encouraged to believe that you don't have to choose between the stars on stage or the ones in space. 

The next episode of BBC2's Astronauts: have you got what it takes? will air on Sunday 27th August at 9pm.

India Bourke is an environment writer and editorial assistant at the New Statesman.