Despite what you might hear, Big 4 audit firms have it pretty easy when it comes to compliance. Yes, there a ton of rules to follow, but in the event that a firm, one (or several) of its partners and employees run afoul of those rules, the consequences range from a mild rebuke to a small fine to a brief time-out from accepting or pursuing clients.
This environment of relative impunity is not lost on anyone. Which is why this judge in the U.K. is recommending stiffer fines:
Misdeeds by the world’s “Big Four” accounting firms should be punished with much bigger fines, Britain’s accounting watchdog was advised in a report released on Tuesday.
“Fines greater than those that have heretofore been imposed may be appropriate in really serious cases,” former judge Christopher Clarke said in the study published by the Financial Reporting Council (FRC).
What are “really serious cases” you might ask?
“If one of the Big 4 firms was guilty of seriously bad incompetence, in respect of the audit of a major public company… a financial penalty of ten million pounds or more before any discount could be appropriate,” the report said.
Oh, man. Can I volunteer to establish the standards of “seriously bad incompetence”? The nuances of what constitutes mere “incompetence” and “seriously bad incompetence” would require an acute sensibility for the jackassery of auditor behavior, and I think I’m uniquely qualified to adjudicate these matters.
For example, I’d love to grapple with the question about the severity of an audit partner banging the chief accounting officer of a client. Or if a partner is a little too chummy with a CFO. Or if a firm’s leadership is engaged in elaborate cover-ups, or ignored widespread corruption for decades.
Yes, I think I could do an excellent job of deciding if these types of situations were worthy of an eight-figure fine that would have a limited success deterring audit firms from seriously bad incompetence. I stand ready for the call.