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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Our union backed Brexit, but that doesn't mean scrapping freedom of movement

We can only improve the lives of our members, like those planning stike action at McDonalds, through solidarity.

The campaign to defend and extend free movement – highlighted by the launch of the Labour Campaign for Free Movement this month – is being seen in some circles as a back door strategy to re-run the EU referendum. If that was truly the case, then I don't think Unions like mine (the BFAWU) would be involved, especially as we campaigned to leave the EU ourselves.

In stark contrast to the rhetoric used by many sections of the Leave campaign, our argument wasn’t driven by fear and paranoia about migrant workers. A good number of the BFAWU’s membership is made up of workers not just from the EU, but from all corners of the world. They make a positive contribution to the industry that we represent. These people make a far larger and important contribution to our society and our communities than the wealthy Brexiteers, who sought to do nothing other than de-humanise them, cheered along by a rabid, right-wing press. 

Those who are calling for end to freedom of movement fail to realise that it’s people, rather than land and borders that makes the world we live in. Division works only in the interest of those that want to hold power, control, influence and wealth. Unfortunately, despite a rich history in terms of where division leads us, a good chunk of the UK population still falls for it. We believe that those who live and work here or in other countries should have their skills recognised and enjoy the same rights as those born in that country, including the democratic right to vote. 

Workers born outside of the UK contribute more than £328 million to the UK economy every day. Our NHS depends on their labour in order to keep it running; the leisure and hospitality industries depend on them in order to function; the food industry (including farming to a degree) is often propped up by their work.

The real architects of our misery and hardship reside in Westminster. It is they who introduced legislation designed to allow bosses to act with impunity and pay poverty wages. The only way we can really improve our lives is not as some would have you believe, by blaming other poor workers from other countries, it is through standing together in solidarity. By organising and combining that we become stronger as our fabulous members are showing through their decision to ballot for strike action in McDonalds.

Our members in McDonalds are both born in the UK and outside the UK, and where the bosses have separated groups of workers by pitting certain nationalities against each other, the workers organised have stood together and fought to win change for all, even organising themed social events to welcome each other in the face of the bosses ‘attempts to create divisions in the workplace.

Our union has held the long term view that we should have a planned economy with an ability to own and control the means of production. Our members saw the EU as a gravy train, working in the interests of wealthy elites and industrial scale tax avoidance. They felt that leaving the EU would give the UK the best opportunity to renationalise our key industries and begin a programme of manufacturing on a scale that would allow us to be self-sufficient and independent while enjoying solid trading relationships with other countries. Obviously, a key component in terms of facilitating this is continued freedom of movement.

Many of our members come from communities that voted to leave the EU. They are a reflection of real life that the movers and shakers in both the Leave and Remain campaigns took for granted. We weren’t surprised by the outcome of the EU referendum; after decades of politicians heaping blame on the EU for everything from the shape of fruit to personal hardship, what else could we possibly expect? However, we cannot allow migrant labour to remain as a political football to give succour to the prejudices of the uninformed. Given the same rights and freedoms as UK citizens, foreign workers have the ability to ensure that the UK actually makes a success of Brexit, one that benefits the many, rather than the few.

Ian Hodon is President of the Bakers and Allied Food Workers Union and founding signatory of the Labour Campaign for Free Movement.