Auditors Ready To Drop Riskiest Corporate Clients

As pressure continues to mount on the so-called Big Four corporate auditors in both Australia and the U.K., the Financial Times reports that the conglomerates are gearing up to offload some of its riskiest corporate clients.

The publication reported Wednesday (Aug. 7) that the U.K. big four — Ernst & Young (EY), KPMG, Deloitte and PricewaterhouseCoopers (PwC) — as well as some of the smaller leaders like Grant Thornton and BDO, are conducting “sweeping” reviews of their client bases that they consider to be high risk. The companies are looking particularly close at industries like outsourcing and retail, as well as clients that have already been flagged for lackluster financial controls.

PwC first began its review in June, reports said, with its Head of Audit Hemione Hudson telling the publication that the company aims to “ensure we achieve a return that allows continual investment in and focus on quality.” The company said there would “undoubtedly” be instances where PwC drops some of its most problematic clients, and that the review would lead to higher fees.

“We need to make sure we are only working with organizations that put quality corporate reporting at the top of the agenda,” she said.

EY, meanwhile, sent a letter to its largest clients — including Standard Chartered, Vodafone and Royal Bank of Scotland — warning them of an increase in audit fees as a result of “unprecedented market forces,” likely referencing the intensifying regulatory scrutiny on the industry.

According to the Financial Times, KPMG has already let go of some of its clients due to low fees and high compliance costs. Grant Thornton is expected to divest Sports Direct as a client next month amid rising concerns over the company’s accounting practices, with the auditor separately announcing plans to take a “line by line” review of its clients.

The auditors’ initiatives come amid rising pressure from policymakers for auditors to improve their performance and quality checks following high-profile corporate collapses.

“Tens of millions of people depend on robust and high-quality audits,” said Competition and Markets Authority Chairman Andrew Tyrie in a statement last December, the Financial Times recalled. “If a company’s books aren’t properly examined, people’s jobs, pensions or savings can be at risk.”