Carillion collapse leads to calls for ‘big four’ break-up

Written by Theo Andrew

A group of MPs have called for an investigation into the break-up of the ‘big four’ accountancy firms as part of their inquiry into the collapse of Carillion.

In a joint report on the demise of the construction firm published today, 16 May 2018, the Work and Pensions and the Business, Energy and Industrial Strategy (BEIS) committees recommended that the Competition and Markets Authority (CMA) review the audit market and “explicitly” include consideration of breaking up the big four into more audit firms.

KPMG, EY, PwC and Deliotte all had a part to play in auditing Carillion, however it was the latter two that came under fire for the way it dealt with the firm’s pension provisions.

Giving evidence in front of the joint committee in March, PwC restructuring and pensions partner Gavin Stoner said the firm did “not regret” its role in deferring payments into the Carillion pension scheme.

He said: “We improved the ranking [of the pension scheme] in terms of the chain of insolvency so there was robust protection and a seat at the table going forward, which has saved the scheme multiple of millions of pounds.”

Furthermore, KPMG, which has audited the firm for all of its 19 years, blamed the £725m actuarial loss of the Carillion pension scheme on the falling of AA bond yields in its evidence session in February.

According to accounts, they received combined earnings of £71.6m for their work with Carillion, while PwC earned £6.1m working on the firm's pension schemes since 2008.

The report said: “We recommend that the government refers the statutory audit market to the CMA. The terms of reference of that review should explicitly include consideration of both breaking up the big four into more audit firms, and detaching audit arms from those providing other professional services.”

BEIS committee chair, Rachel Reeves, commented: “The sorry saga of Carillion is further evidence that the big four accountancy firms are prioritising their own profits ahead of good governance at the companies they are supposed to be putting under the microscope.

“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 big four have already faced two official UK competition inquiries, completed in 2005 and 2013, both of which found “substantial barriers to effective competition”.

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