Once-staid audit sector enters brave new world
The days of auditors as grey-suited backroom boys is over.
Whether they like it or not, the spotlight turned on the sector following the collapse of outsourcer Carillion has not diminished in intensity.
The Big Four face the challenge of a potential raft of reforms designed to rein them in, overseen by a new beefed-up regulator – the Audit, Reporting and Governance Authority – due to be introduced next year.
Read more: Grant Thornton due to quit Sports Direct after €674m Belgian tax bill
Some of the so-called challenger firms snapping at the heels of the Big Four also see the opportunity to move up the value chain, particularly with the call from the Competition and Markets Authority for the introduction of joint audits for larger businesses which would see a Big Four firm and a challenger firm working together on audits.
French firm Mazars has already scored one notable coup this year, winning the tender to audit US bank Goldman Sachs in Europe from 2021.
Fellow Wall Street giant JP Morgan is also set to kick off a review of its audit relationships for its European arm, Sky News reported yesterday.
Read more: MPs call for audit watchdog to reform after endorsing new chair Simon Dingemans
The scope of choice for businesses tendering for a new auditor is small, with the Big Four often conflicted by existing relationships held by their non-audit arms.
For JP Morgan, the incumbent PwC may retain its role, but the opportunities for newcomers to break into the lucrative world of bank audits are obvious.
Private equity is also looking to get in on the act, with reports last week that accountancy firm Cogital – founded in 2016 by former Deloitte boss John Connolly – is fielding bids from BC Partners, Permira and PAI in Europe and Hellman & Friedman that could value it at £1bn.
Things are not going all the challenger firms way, however, with Grant Thornton reportedly set to quit as Sports Direct’s auditor as Mike Ashley’s baby gets into hot water.
Grant Thornton’s woes (it was also ensnared in the Patisserie Valerie scandal) raise questions about the ability of the challenger firms to fill the Big Four’s shoes.
The Big Four are still in rude health, but the challenges and complexities they face are multiplying. Once the preserve of the dour beancounter, accountancy – with its scandals, takeovers, mergers and rule-changes – increasingly looks like one of the more febrile corners of the financial world.