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Why reform and separation is needed in the audit and professional services industries

Lack of competition results in large audit firms profiting while retail struggles

Chris Biggs, Partner at Theta Global Advisors, discusses why small businesses are essential in overhauling the audit and professional services industry successfully and restoring business confidence.

19% of UK workers say that they have won previously inaccessible, large clients, growing as a business as a result during Covid-19.

This week, the Sunday Times released an analysis of 79 high street restructurings and insolvencies over the last three years. This analysis has shown that large accounting firms are set to share around £130 million in fees, highlighting the need for a shake up of the industry. Economists have labelled this as an example of a lack of competition allowing for extortionate fees from the larger accounting and professional services firms, again calling for a separation of professional services. 

With this shake-up long overdue following scandals surrounding Pâtisserie Valerie, Thomas Cook, and Carillion, calls have again come to remove the Big Four’s dominance, allowing for a more competitive sector. Such a remove would reduce conflicting interests, thus improving standards for audits and other professional services, allowing companies alternative firms to approach at a a fairer price point while the high street recovers.

Landmark research by consultancy and accounting disruptor, Theta Global Advisors shows that confidence in small businesses has grown exponentially, and that these same businesses have won previously inaccessible large clients over the last year. As such, small firms are better placed than ever before to take on the audits of FTSE350 companies, disrupting the dominance of the Big Four forever:

  • Two thirds (66%) of Brits say their trust in small businesses and service providers has grown during the pandemic
  • 19% of UK workers say that they have won previously inaccessible, large clients, growing as a business as a result during Covid-19
  • Over a quarter (26%) of workers at small businesses feel that they have been successful during Covid-19

(nationally representative research carried out across a body of 2100 respondents, in full compliance with British Polling Council guidelines)

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 Biggs, partner at consultancy and accounting disruptor Theta Global Advisors

“There have been three independent reviews so far and major failings are still happening, now no one wants to be on watch when the next failing almost inevitably happens. The new minister has almost certainly re-energised the push for change and it seems we are now more likely to see 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. 

“While this is a positive move there are issues that will still remain, such as what this reform of the big firms will mean for the mid-tier firms. Surely the push to open the audit market to the mid-tier firms will mean that they also need to be challenged with the same drive to reform. On top of reform, penalties for businesses and those who commit frauds or false accounting needs to be further strengthened to act as a real deterrent – addressing the auditor failings is only part of the issue.

“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. Clients will avoid auditor independence issues if they engage firms such as ours and they could use other Big Four and mid-tier firms who are not their current auditors, however, there are some issues there. By using such other firms who are also auditors, then if the clients want to change auditors in the future, they will have limited the ‘pool’ of possible auditors who are totally independent to engage i.e, firms who have not recently provided non-audit services. This could become problematic and continue to raise independence issues in the future, as well as feed into the lack of competition allowing for extortionate fees in the sector.”

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