The professional services industry is dominated by the Big Four firms: Deloitte, EY, KMPG and PwC. The Big Four are international amalgamates, altogether auditing all but one of the FTSE 100 index of leading UK-listed companies, tower over the accounting, tax and consulting landscapes, and hire thousands of graduates every year. They have risen through a combination of powerful, historical relationships between the Big Four firms and their clients. After the Big Four, there are mid-size accountancy firms such as Grant Thornton, BDO, Mazars and Baker Tilly.
Dominant amenities the companies include are the audit, tax, business consultation and administration-advising. However, the industry is at heads concerning whether or not to keep actuarial facilities in conjunction with other services. Audits are thorough examinations of a megacorp’s budgetary records, appraising if an enterprise’s records are reliable. Audits are an objective and autonomous body, aiming to ensure justice and fairness. However, if the same company that administers auditors yields conflicting services such as consulting, the question of bias is more essential.
The Big Four
The Big Four have evolved from auditors into professional services firms whose fastest-growing divisions are non-audit services, such as consulting. By offering everything from legal services and insolvency procedures to advisory work on capital markets and cybersecurity, the firms are attempting to tap into potentially lucrative growth areas and present themselves as a ‘one-stop shop’. Nonetheless, just as significant as the opportunity is the risk of mismanaging the inevitable conflicts of interest; the stakes are high.
Critics claim the shifting balance of activities could threaten auditor quality and independence, essentially transforming the social atmosphere of entire corporations. The Big Four firms argue that having a broad client and revenue base helps ensure stability. They say that sector knowledge, which is enhanced by providing related advisory services, is essential to being a good auditor in that sector. They maintain that by offering a range of disciplines makes them a more attractive employer to graduates.
Auditors are also attempting to rebuild confidence after being widely criticised in the wake of the financial crisis for failing to raise the alarm over the overstretched business models of financial institutions that broke apart or only survived with taxpayer funding. Post the depression, Emergency managers pushed for the separation of Audits, resulting in escalated rivalry and quality of checking services due to the high-pressure environment.
In 2011, the EU tried to push through drastic reforms that would force companies to split into separate audit and consulting arms above a certain threshold. But this proposal was removed after intense lobbying from the big firms. Instead, European regulators have passed ‘mandatory rotation’, which demands that companies put their audit out to tender every decade and change auditor at least every 20 years. The EU deal also imposes a 70 percent cap on the fees a firm can generate from non-audit services and forbids some advisory services.
Criticism of the Big Four
The mandatory rotation has resulted in a merry-go-round of audits changing hands among the Big Four. Critics say that it has only sharpened the potential for conflicts of interest, and there are more occasions when a firm has to decide whether to pitch for an audit or go after the more lucrative consulting work.
The challenge for regulators is exacerbated by the fact that there are only four firms equipped to review giant multinational companies. The industry cannot afford to lose business because of commercial or regulatory pressures or a hit to their reputation from a failed audit.
The most prominent financial captions focus on tax avoidance schemes; from celebrities using an off-shore company to shelter income and the likes of multinationals, such as Starbucks, exploiting loopholes to pay a minimum to zero taxes.
Taxation and Auditing Administration are essential considering the current global economic climate. Conglomerates enlist tax consultants to support consumers, more so their affluent clients and most prosperous enterprises, helping them to ascertain a method reduce the amount of income and business levies they are required to pay. However, tax evasion is a questionable business concerning morality. Although taxes are not mandatory, ethically, people are expected to pay for the betterment of the community. Legal bodies are clamping down hard on this controversial amenity, potentially affecting interrelated industrial sectors.