Who watches the watchmen? Apparently, the CMA.
16 May 2018
Two Commons Select Committees have found that Carillion’s board fostered a ‘rotten corporate culture’ and was responsible for the company’s collapse, without any countenance from its auditing accountancy firms.
Carillion went into liquidation in January with debts of up to £7bn, including £2.6bn in pension liabilities and a relatively paltry £29m in cash.
Rachel Reeves, chairperson of the BEIS Committee, said the firm’s failure showed that auditors prioritised their own profits ahead of good governance:
“KMPG, PwC, Deloitte and EY pocket millions of pounds for their lucrative audit work – even when they fail to warn about corporate disasters like Carillion’ . It is a parasitical relationship which sees the auditors prosper, regardless of what happens to the companies, employees and investors who rely on their scrutiny”.
The report recommends that the Competition and Markets Authority (CMA), should look again at potentially breaking up the so-called big four accountancy firms and/or splitting their audit functions from non-audit services. Andrew Tyrie, the newly anointed head of the CMA, has said he will look at competition in the audit market dominated by the accountancy firms.
This will be previously unexplored territory for the CMA and raises interesting questions about whether it intends to widen its gaze to other professions such as law and medicine. With such professions already facing heavy regulation from their respective bodies, the CMA’s added purview from a competition standpoint will by necessity lead to a dual pronged regulatory stand-off: consumer choice v entrenched professional standards. How these markedly different worlds will play together remains to be seen, but it would seem prudent for members of the professions to start considering how their operations align with the issues raised in Carillion.
The content of this article is for general information only.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at May 2018.