The Financial Reporting Council of the UK has released the annual results of its inspection of the Big 4 accounting firms. Its verdict? They can do better.
Each of the Big Four - KPMG, PwC, Deloitte and Ernst & Young - were found to have been less than perfect. Each firm had its own specific offenses, but the common thread running through the report was that auditors faced too much internal pressure to do non-audit work, so that the quality and independence of the audits were in danger of slipping.
Ernst & Young was rapped for linking its auditors' pay and promotion to their non-audit work. Deloitte and PwC were both castigated for sending employees to advise companies both firms were auditing.
The inspector said that audit firms should take more "sufficient professional skepticism in relation to key audit judgments." In other words, the firms should not take the CFO's word at face value. In particular, this skepticism should be applied to forecasts, impairment tests, revenue and the confirmation of claimed assets.
The regulators are in a difficult position. There has never been more demand for the services of the Big 4. This week, Deloitte CEO Jim Quigley said that his firm was planning on hiring 80,000 new staff globally over the next five years, taking its total roster to 250,000.
Despite being blamed for going easy on companies and banks before the crisis, companies and regulators have no option but to rely totally on their services.
This stranglehold on business looks set to continue, with more work coming from the non-auditing side. Deloitte also released results this week that showed auditing revenues had slid 1% this year over last year. But its work in the public sector had grown by 38 percent.