A parliamentary report from the House of Lords has criticized the “Big Four” auditing firms for failing
to raise warnings about systemic problems in banks that contributed to the financial crash.
The four companies – KPMG, Ernst & Young, Deloitte and PwC – conduct bookkeeping checks and
risk management reviews for businesses across the world. However, the House of Lords’ report said
that the complacency of the four firms contributed to the severity of the financial crisis, and called
for a probe into the audit market, with possible involvement from the Competition Commission.
The report said: “The Big Four’s domination of the large firm audit market in the UK is almost
complete: in 2010 they audited 99 of the FTSE 100 largest listed companies … It is clearly an
oligopoly with all the attendant concerns about competition, choice, quality and conflict of interest.
It gave no warning of the banking crisis.”
It added that: “Either they were culpably unaware of the mounting dangers, or … they equally
culpably failed to alert the supervisory authority of their concerns.”
The report’s findings have been disputed by representatives of the Big Four. PwC’s UK chairman, Ian
Powell, said: “I do not agree that we were complacent and I am surprised by the committee’s claim
that there was a ‘dereliction of duty’ given their stated view that auditors fulfilled their legal duties.”
The report also met with a lukewarm response from the UK’s main accounting bodies – the Institute
of Chartered Accountants in England and Wales (ICAEW) and the Association of Chartered Certified
Accountants (ACCA).
ICAEW agreed that the way firms conduct audits needs to evolve, but disputed the report’s
suggestion that auditing failures contributed to the financial crash. ACCA also dismissed the report’s
conclusion, but welcomed recommendations that auditors should play a wider role in interacting
with businesses and regulatory supervisors.
