UK Accounting Giants Reserve $212M For Possible Fines

The U.K.’s so-called Big Four accounting giants — PwC, Deloitte, KPMG and EY — have reportedly set aside more than $212 million in preparation for potential fines ahead as auditing scrutiny grows.

Reports in the Financial Times said the U.K. Financial Reporting Council’s ongoing investigation of the accountancy firms is focusing on about 30 suspected auditing fails, with investigators ramping up scrutiny of the firms after several high-profile corporate collapses in recent years, including that of contracting giant Carillion, café chain Patisserie Valerie and travel conglomerate Thomas Cook.

The collapses raised concerns that auditors failed to detect financial troubles in corporates’ books — and ignited a debate over whether auditors are responsible for discovering potential signs of impending collapse, or even fraud.

In the year ahead, the Financial Reporting Council (FRC) is set to be replaced by a more powerful regulator, the Audit, Reporting and Governance Authority, in the government’s efforts to ramp up pressure on the auditing industry. In the year to April 2019, the U.K. government issued a combined $56.29 million in fines to the auditing industry, three times the value of fines it had issued in the year prior.

Now, auditing giants are bracing for even more fines.

KPMG in particular is provisioning millions for possible sanctions related to its work with Carillion before its collapse, while the auditor is also reportedly facing a potential lawsuit from the U.K. Insolvency Service. KPMG is also the subject of government investigations probing its audits of Rolls-Royce and Conviviality, reports said. KPMG has paid out more fines than any of its rivals in the last two years, the publication added.

EY, meanwhile, is under investigation for its audit of Thomas Cook, while PwC received the largest fine in the Financial Reporting Council’s history in 2018 in a case related to its audit of BHS. PwC, which is not increasing its provisions for potential legal action or regulatory fines, is also being probed for its audit of BT. The FRC has also filed proceedings against Deloitte related to audits of Autonomy, later sold to Hewlett-Packard, reports noted.