1 in 3 Big Business Audits Fail to Meet UK Standards - FRC Reveals as KPMG is Fined £13 Million

Chris Biggs, Partner at Theta Global Advisors, discusses the newly integral role of mid-sized professional service firms in improving UK professional service standards.

1/3 Audits in UK Below National Standards

The Financial Reporting Council (FRC) have reported that around a third (29%) of audits performed by large professional service firms of major companies fail to meet UK standards and 33% in need of improvement. With less than 60% of KPMG's audits meeting the standards required to be considered top quality audits, the Big Four are again coming under fire - a £13 million fine imposed on the firm falls just short of the record £15 million fine Deloitte received last year. In contrast, research from accounting and consultancy disruptors, Theta Global Advisors has seen 19% of smaller, mid-sized professional service firms taking on previously inaccessible major corporations as clients and new business, fostering innovation in the sector and improving standards.

Despite criticisms of Kwasi Kwarteng's recent reform proposals for the UK professional services sector, a shake-up is long overdue with the FRC transitioning into the Audit, Reporting and Governance Authority (ARGA) with broader powers to reflect this. For too long, governing bodies have monitored compliance and failed to foster innovation. However, Covid-19 has triggered the success of smaller, mid-sized professional service firms which offer more tailored, flexible approaches, and are integral in Kwarteng's plans to increase competition in the sector in order to drive the disruption of the Big Four to avoid further scandals as seen with Thomas Cook, Pátisserie Valerie, Carillion, and more.

Auditor-Independent Advisors in UK

Supportive structures for smaller and mid-size firms can allow for the continued, seamless disruption of the sector, removing the problematic conflicts of interest that have triggered concerns for the services offered by the big firms in the UK. While a lack of auditor-independent advisors now may leave far too few options as businesses begin to see the need for new professional service firms, grassroots firms are filling the boots of big firms in a truly unprecedented manner.

Chris Biggs, partner at Theta Global Advisors has been leading by example at his firm. Theta provide accounting and consultancy services and deliberately do not audit companies to avoid any conflicts of interest, an approach Chris is keen to see applied across the professional services industry to maintain higher standards in a rapidly changing sector.

Chris comments on the disruption of the Big Four's monopoly and how auditor-independent advisors such as Theta have already successfully begun this diversification of the sector, having worked on major accounts this year:

"Possible quality risks, skills shortages, and resource shortages for firms outside of the Big Four performing particularly complex and demanding audits are in some ways to be expected. However, these risks can be managed and mitigated with appropriate structures to facilitate a growth period as these smaller firms gain more experience and resource when working on such projects. 

“There have been three independent reviews so far and major failings are still happening with the Big Four's current monopoly, now we are seeing -with the FRC's recent review - yet another failure example of the need for reform and diversification. The new minister coming in has certainly re-energised the push, but we need to now see more action.

"Independence of the Big Four's audit and consultancy services is crucial. We cannot risk jeopardising the independence of the audit because of lucrative consultancy services provided to the same client. Almost as important as this is the issue of 'perception', the public must have the perception that the audit role if fully independent and impartial at all times, otherwise they will lose confidence in the market. 

"At Theta Global Advisors, we do not audit and hence, we are one of the few truly independent accounting advisory firms for non-audit services. Mid-sized firms such as ours that are disrupting the industry in a truly unprecedented manner are seeing great success having worked on major accounts this year. Kwarteng's proposals for supportive structures working with the Big Four can see more mid-sized firms such as our own seamlessly diversify the sector, maintaining London as a top choice globally for professional services and are essential to stay ahead of the curb moving forwards."