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Big Four accounting firms
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== Criticism == {{See also|Accounting scandals}} === Audit quality and ethics === A 2019 analysis by [[Public Company Accounting Oversight Board]] (PCAOB) in the United States observed that the big four accounting firms bungled almost 31% of their audits since 2009. In another project study on government oversight, it was seen that while the auditors colluded to present audit reports that pleased their clients, the times they did not resulted in a loss of business. Despite this large-scale collusion in audits, the PCAOB in its 16-year history has only made 18 enforcement cases against the "big four". Although these auditors have failed audits in 31% of cases (808 cases in total), they have only faced action by PCAOB in 6.6% of the cases. KPMG at that point had never been fined despite having the worst audit failure rate of 36.6%.<ref>{{Cite web |last=Haldevang |first=Max de |title=Big Four accounting firms bungle a third of US audits but are rarely fined |url=https://qz.com/1705744/big-four-accounting-firms-are-bungling-a-third-of-us-audits/ |access-date=2019-09-19 |website=Quartz |date=10 September 2019 |language=en}}</ref> As per the Financial Reporting Council (FRC) none of the Big Four – Deloitte, EY, KPMG, and PwC managed to surpass the 90% target of its audits. The inefficiency in audit was resulting in a loss of investors' money, people's pension plans, stakeholders' livelihoods and was putting a question mark on the credibility of audited financial statements. "At a time when the future of the audit sector is under the microscope, the latest audit quality results are not acceptable," said Stephen Haddrill, the FRC's Chief executive. Multiple ethics scandals and questionable practices across the globe led to multi-million dollar fines and subsequent settlements by all the Big Four firms.<ref>{{Cite web |date=9 July 2020 |title=21 Scandals, Settlements and Corporate Crimes of Big 4 Accounting Firms in 2019 |url=https://facelesscompliance.com/7604/21-scandals-settlements-and-corporate-crimes-of-big-4-accounting-firms-in-2019 |access-date=July 9, 2020 |website=facelesscompliance.com}}</ref> Despite repeated sanctions from regulators, the Big Four have seen continued challenges to audit quality and ethics as the 2020 decade comes to a close. #In May 2018, KPMG was accused of being "complicit" in signing off [[Carillion]]'s "increasingly fantastical figures" before Carillion ultimately collapsed.<ref name="Davies-16May2018">{{Cite news |last=Davies |first=Rob |date=16 May 2018 |title='Recklessness, hubris and greed' – Carillion slammed by MPs |work=The Guardian |url=https://www.theguardian.com/business/2018/may/16/recklessness-hubris-and-greed-carillion-slammed-by-mps |access-date=16 May 2018 |archive-url=https://web.archive.org/web/20201221071907/https://www.theguardian.com/business/2018/may/16/recklessness-hubris-and-greed-carillion-slammed-by-mps |archive-date=21 December 2020}}</ref> #In January 2020, PwC faces allegations of potential conflict of interest in its audit of [[Sonangol Group|Sonangol]], given its dual roles of both auditor and consultant.<ref>{{Cite news |last1=Garside |first1=Juliette |last2=Inman |first2=Phillip |date=23 January 2020 |title=PwC under growing scrutiny as scandal engulfs Isabel dos Santos |work=The Guardian |url=https://www.theguardian.com/world/2020/jan/23/pwc-growing-scrutiny-isabel-dos-santos-scandal-luanda-leaks-angola |access-date=21 December 2020 |archive-url=https://web.archive.org/web/20201221071733/https://www.theguardian.com/world/2020/jan/23/pwc-growing-scrutiny-isabel-dos-santos-scandal-luanda-leaks-angola |archive-date=21 December 2020}}</ref> #In September 2020, Deloitte was fined £15 million (US$19.4 million) by the FRC for failing to apply sufficient professional skepticism in its audits of [[HP Autonomy|Autonomy]]'s 2009 to 2011 financial statements prior to Autonomy's acquisition by [[Hewlett-Packard]].<ref>{{Cite news |last=Cohn |first=Michael |date=17 September 2020 |title=Deloitte fined £15M in U.K. for Autonomy audits |publisher=Accounting Today |url=https://www.accountingtoday.com/news/deloitte-fined-15m-in-u-k-for-autonomy-audits |access-date=21 December 2020 |archive-url=https://web.archive.org/web/20201029104808/https://www.accountingtoday.com/news/deloitte-fined-15m-in-u-k-for-autonomy-audits |archive-date=29 October 2020}}</ref> #In June 2020, EY was accused of poor auditing for failing to discover that [[Wirecard scandal|€1.9 billion in cash was missing at Wirecard AG]], precipitating [[Wirecard|Wirecard's]] collapse and eventual sale to Santander Bank for €100 million in November 2020.<ref name="FinTimNov2020">{{Cite news |last1=Storbeck |first1=Olaf |last2=Dombey |first2=Daniel |date=16 November 2020 |title=Santander buys Wirecard's core European business for €100m |publisher=[[Financial Times]] |url=https://www.ft.com/content/e7c38f82-f54c-431f-890e-17adbaa530d1 |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/e7c38f82-f54c-431f-890e-17adbaa530d1 |archive-date=2022-12-10 |url-access=subscription |access-date=17 November 2020}}</ref><ref>{{Cite web |date=2020-09-16 |title=EY chairman admits 'regret' over Wirecard failure |url=https://www.afr.com/companies/professional-services/ey-chairman-admits-regret-over-wirecard-failure-20200916-p55w77 |access-date=2020-12-18 |website=Australian Financial Review |language=en}}</ref><ref>{{Cite news |last=Seidenstuecker |first=Jörn Poltz, Hans |date=2020-12-04 |title=German prosecutors probe EY auditors over Wirecard collapse |language=en |agency=Reuters|url=https://www.reuters.com/article/wirecard-accounts-ey-idUSKBN28E29Z |access-date=2020-12-18}}</ref><ref>{{Cite news |date=2020-09-22 |title=Wirecard Woes Mount for Ernst & Young as Clients Cut Auditor |language=en |publisher=Bloomberg News |url=https://www.bloomberg.com/news/articles/2020-09-22/wirecard-woes-mount-for-ernst-young-as-clients-leave-auditor |access-date=2020-12-18}}</ref> === Tax avoidance === According to Australian taxation expert George Rozvany, the Big Four are "the masterminds of multinational [[tax avoidance]] and the architects of tax schemes which cost governments and their taxpayers an estimated {{US$|1 trillion}} a year". At the same time they are advising governments on [[tax reform]]s, they are advising their multinational clients on how to avoid taxes.<ref>{{Cite news |date=2016-07-11 |title='Tax avoidance' masters revealed |publisher=The NEWDAILY |url=http://thenewdaily.com.au/money/finance-news/2016/07/11/architects-global-tax-avoidance-revealed/}}</ref><ref>{{Cite news |date=2016-01-18 |title='Big Four' audit firms never examined over illegal tax plans |work=[[The Independent]] |url=https://www.independent.co.uk/news/uk/crime/emb-0000-big-four-audit-firms-never-examined-over-illegal-tax-plans-a6818126.html |quote=Regulators fail to act as they are dominated by the companies they are supposed to police, say critics}}</ref> The [[PwC tax scandal]] is one example where PwC sold advice to clients on tax avoidance, and did so using information obtained from PwC tax experts consulting for the Australian Tax Office and Department of Treasury. === Market concentration and alleged collusion amongst the Big Four === In the wake of [[industry concentration]] and the occasional firm failure, the issue of a credible alternative industry structure has been raised.<ref>{{Cite SSRN |title=Too Big to Fail: Moral Hazard in Auditing and the Need to Restructure the Industry Before it Unravels |ssrn=928482}}</ref> The limiting factor on the expansion of the Big Four to include additional firms, is that although some of the firms in the next tier have become quite substantially large, or have formed international networks, effectively all large public companies insist on having an audit performed by a Big Four network. This creates the complication that smaller firms have no way to compete well enough to make it into the top end of the market. Documents published in June 2010 show that some UK companies' [[Contractual term|banking covenants]] required them to use one of the Big Four. This approach from the lender prevents firms in the next tier from competing for audit work for such companies. The [[British Bankers' Association]] said that such clauses are rare.<ref>{{Cite web |title=Big-Four-only clauses are rare: BBA |url=http://www.accountancyage.com/accountancyage/news/2264992/big-four-clauses-rare-bba |url-status=dead |archive-url=https://web.archive.org/web/20100621014525/http://www.accountancyage.com/accountancyage/news/2264992/big-four-clauses-rare-bba |archive-date=2010-06-21 |website=accountancyage.com}}</ref> Current discussions in the UK consider outlawing such clauses. In February 2011, the [[Office of the Director of Corporate Enforcement|Irish Director of Corporate Enforcement]] Paul Appleby said that auditors "report surprisingly few types of company law offences to us", with the so-called "big four" auditing firms reporting the least often to his office, at just 5% of all reports.<ref>{{Cite news |date=11 February 2011 |title=Appleby and Revenue query work of auditors |publisher=Independent.ie |editor-last=Oliver |editor-first=Emmet |url=https://www.independent.ie/business/irish/appleby-and-revenue-query-work-of-auditors-26705531.html |access-date=26 October 2020 |archive-url=https://web.archive.org/web/20201026202021/https://www.independent.ie/business/irish/appleby-and-revenue-query-work-of-auditors-26705531.html |archive-date=26 October 2020}}</ref> In 2011, the [[House of Lords]] of United Kingdom completed an inquiry into the financial crisis, and called for an [[Office of Fair Trading]] investigation into the dominance of the Big Four.<ref>{{Cite news |date=30 March 2011 |title=Auditors criticised for role in financial crisis |work=Financial Times |url=http://www.ft.com/cms/s/0/358b366e-59fa-11e0-ba8d-00144feab49a.html |archive-url=https://ghostarchive.org/archive/20221210/http://www.ft.com/cms/s/0/358b366e-59fa-11e0-ba8d-00144feab49a.html |archive-date=2022-12-10 |url-access=subscription}}</ref> In September 2019, [[Bloomberg News]] reported that The Big Four controlled 95% of the FTSE 250 audit market by client numbers and 96% by market capitalization in August 2019, according to Adviser Rankings.<ref>{{Cite news |last=Kapoor |first=Michael |date=September 1, 2019 |title=Big Four Still Dominate U.K. Large-Company Audits, Survey Shows |publisher=Bloomberg |url=https://news.bloombergtax.com/financial-accounting/big-four-still-dominate-u-k-large-company-audits-survey-shows}}</ref> In 2018, an Australian parliamentary committee was told that the heads of the Big Four firms have met regularly for dinner. The revelation was among issues which led to an inquiry by the [[Australian Competition & Consumer Commission]] into possible collusion in the selling of audit and other services. However, Ernst & Young told the inquiry that the dinners, which were held once or twice a year, were to discuss industry trends and issues of corporate culture such as inclusion and diversity.<ref>{{Cite news |last1=Tadros |first1=Edmund |last2=McIlroy |first2=Tom |date=15 February 2019 |title=Big four left guessing over dinner guests |page=10 |work=[[Australian Financial Review]]}}</ref> The January 2018 collapse of the UK construction and services company [[Carillion]] raised further questions about the Big Four, all of which had advised the company before its liquidation. On 13 February 2018, the Big Four were described by [[Member of Parliament (United Kingdom)|Member of Parliament]] (MP) and chair of the [[Work and Pensions Select Committee]] [[Frank Field (British politician)|Frank Field]] as "feasting on what was soon to become a carcass" after collecting fees of £72m for Carillion work during the years leading up to its collapse.<ref name="Davies-13Feb2018">{{Cite news |last=Davies |first=Rob |date=13 February 2018 |title=Carillion: accountants accused of 'feasting' on company |work=[[The Guardian]] |url=https://www.theguardian.com/business/2018/feb/13/carillion-accountants-accused-of-feasting-on-company |access-date=13 February 2018}}</ref> The final report of a Parliamentary inquiry into the collapse of Carillion, published on 16 May 2018,<ref name="Davies-16May2018" /> accused the Big Four accounting firms of being a "cosy club", with KPMG singled out for its "complicity" in signing off on Carillion's "increasingly fantastical figures" and internal auditor Deloitte accused of failing to identify, or ignoring, "terminal failings". The report recommended the Government refer the statutory audit market to the [[Competition and Markets Authority]] (CMA), urging consideration of breaking up the Big Four.<ref name="Davies-16May2018" /> In September 2018, [[Secretary of State for Business, Energy and Industrial Strategy|Business Secretary]] [[Greg Clark]] announced he had asked the CMA to conduct an inquiry into competition in the audit sector,<ref name="Busby-29Sep2018">{{Cite news |last=Busby |first=Mattha |date=29 September 2018 |title=Audit sector faces inquiry as minister points to deficiencies |work=The Guardian |url=https://www.theguardian.com/business/2018/sep/29/uk-mulls-audit-sector-reform-after-minister-admits-deficiencies |access-date=29 September 2018}}</ref> and on 9 October 2018, the CMA announced it had launched a detailed study.<ref name="CMA-9Oct2018">{{Cite web |title=CMA launches immediate review of audit sector |url=https://www.gov.uk/government/news/cma-launches-immediate-review-of-audit-sector |access-date=9 October 2018 |website=Gov.uk}}</ref> In July 2020, the UK [[Financial Reporting Council]] told the Big Four that they must submit plans by October 2020 to separate their audit and consultancy operations by 2024.<ref name="BBC-6Jul2020" />
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