The UK boss of PwC said criticism of the audit industry from politicians and regulators was harming the profession and risked making it more difficult to attract new recruits.
Retaining qualified auditors also "becomes much harder if there's a current of external negativity", Kevin Ellis, UK chair and senior partner at PwC, said.
PwC said its attrition levels for recently qualified auditors were 8 per cent higher than in other parts of its business this year, an increase from a 6 per cent differential in 2020.
Only 15 per cent of qualified auditors joining in the next three months were from the UK with the rest coming from overseas, it added, suggesting difficulty attracting candidates domestically.
Auditors have come under fire after they failed to raise the alarm before corporate collapses at companies such as retailer BHS, outsourcer Carillion and café chain Patisserie Valerie. The Big Four accounting firms – Deloitte, EY, KPMG and PwC – have been fined £42 million (€50 million) in the past three years for audit failures.
Committee
Labour MP Rachel Reeves, then chair of the House of Commons business select committee, said in 2019 that auditors were "complicit" in such company failures and told the firms' bosses "we can't rely on you to do the right thing".
Sir Jon Thompson, chief executive of the Financial Reporting Council, said last month that the Big Four sometimes “don’t run their own business very well”, prompting Mr Ellis to accuse the regulator of inconsistency between its public statements and private feedback to PwC.
Mr Ellis said: “Audit still has a ‘halo’ for entry-level recruits as it’s seen as a trusted business training . . . However, its attractiveness . . . is damaged if the external narrative from politicians and regulators focuses on the negatives rather than its critical importance to the economy, supporting investment decisions and capital market confidence.
“At a time when investors want to assess businesses on climate and other ESG [environment, social and governance] issues, the audit profession can’t afford to lose capacity. We need more auditors, not fewer.”
He added that when criticising auditors, it was important to distinguish between cases “where with hindsight auditors had turned out to be wrong” and those where there had been “bad behaviour” by accounting firms.
This would be important in the coming years because economic conditions meant more businesses were likely to come under strain.
“At some stage you feel there is a wall of insolvencies that is going to come,” he said. “If the reaction again is ‘where were the auditors?’, it doesn’t make it any easier to tell a 23-year-old that audit is where you should want to spend the next 25 years of your career.”
Regulators
PwC is under investigation by regulators over its audits of collapsed minibond company London Capital and Finance, and Wyelands Bank, owned by industrialist Sanjeev Gupta.
Accounting firms have been locked in a battle to recruit auditors as they seek to expand their teams to improve audit quality and capitalise on demand from companies to verify non-financial disclosures in areas such as their climate impact.
The FRC has also been expanding, recruiting heavily from the same pool of qualified auditors as the accounting firms it regulates.
Mr Ellis welcomed the FRC’s aim to become an “improvement regulator”, helping firms to improve the quality of their audits instead of focusing primarily on where they had made errors. – Copyright The Financial Times Limited 2021
