The failure of accountancy’s big four has one solution: nationalisation

Ellie Mae O'Hagan
The big four accountancy firms: EY, Deloitte, PwC and KPMG. Composite: Getty/Alamy/Reuters

Steve Denison, a senior partner at the accountancy firm PricewaterhouseCoopers (PwC), is facing a 15-year ban and six-figure fine from the industry watchdog, the Financial Reporting Council, after he failed to raise any concerns about BHS just one year before its collapse. The firm itself is also expecting a hefty fine.

So let’s talk about PwC, and three other firms – Ernst & Young (EY), Deloitte and KPMG – who together make up the big four accountancy firms, in charge of auditing many of the world’s corporations and banks.

These four firms are interesting because, despite signing off on the accounts for multibillion-pound banks just months before the 2008 financial crisis, they’ve largely escaped public anger. One of Fred Goodwin’s first acts when he became CEO of RBS was to bring in Deloitte, a firm he had previously worked for. In 2007, shortly before the taxpayer was forced to bail the bank out of its own reckless decision-making, Deloitte failed to raise any kind of warning about its finances. Despite this, Deloitte received a payrise in 2008 from RBS, and its senior partner John Connolly collected a £5.2m pay package the next year.

Following the public bailout, an investigation into RBS was conducted by the Financial Services Authority, with the assistance of PwC. (It concluded that RBS had made a series of bad decisions in the years leading up to the financial crisis, but that they were not the result of a lack of integrity by any individual at the bank and did not warrant enforcement action.)

RBS replaced Deloitte with EY in 2014 – EY itself having been sued by New York prosecutors in 2010 over allegations it covered up the Lehman Brothers collapse. The firm settled the lawsuit for $10m in 2015, having agreed to pay $99m in damages to investors in a class-action settlement in 2013.

Not only does the public have the right to ask just what is going on with this apparent human centipede of accountancy firms, but it’s high time we talked about nationalising them. Until 2010, we actually did have a public accountancy body called the Audit Commission, which audited £200bn spent by 11,000 public bodies. But in its infinite wisdom, the coalition government scrapped it because – according to Eric Pickles – accountancy should be done in a “competitive environment”.

The Audit Commission was by no means perfect, but it was not embroiled in the number of financial scandals that the big four accountancy firms have been. Questions need to be asked about why these companies have repeatedly been found not to be doing their jobs properly; whether the motive to make money has anything to do with that, and whether a publicly owned body that audits banks and big corporations may be necessary. The collapse of BHS resulted in 11,000 job losses: the negligence of these firms has real impacts on people’s livelihoods and families. Perhaps it’s time to bring them under public control.

• Ellie Mae O’Hagan is a freelance journalist