A former forensic investigator at the Australian Securities and Investments Commission (ASIC) has called for the major accounting firms hired to audit and approve sensitive company reports to be brought before the financial services royal commission to prove their independence.
Glen Unicomb, who spent more than 20 years at the corporate regulator, said he believed the “big four” accounting firms — PwC, Deloitte, EY and KPMG — risked being exposed to pressure to approve reports to protect lucrative advisory relationships.
Mr Unicomb told the ABC’s AM program that accounting firms could “succumb to pushback” from clients particularly if a report is required was part of reporting to a regulator like ASIC or the Australian Prudential Regulation Authority (APRA).
“Obviously, the financial institution would be concerned if the review indicated there were serious deficiencies in their risk and compliance frameworks,” Mr Unicomb said.
Mr Unicomb said today’s business model for accounting firms was potentially conflicted, given the balance between a traditional pipeline of external audit work with a separate advisory arm which attracted big fees.
“They have traditionally been accounting firms doing audit assurance and taxation service, but now the great proportion of their revenue comes from their advisory and consulting services,” he said.
“There is always pressure on those particular business units to to grow the business in terms of revenue.”
‘Cosy relationship’ possible in Australia
Mr Unicomb litigated high profile cases for ASIC, including misconduct leading to the $5.3 billion collapse of insurance giant HIH which led to a royal commission and the conviction and imprisonment of chief executive Ray Williams and director Rodney Adler.
He left ASIC in 2011 and is now managing director of forensic accounting at FTI Consulting after an earlier stint with the insolvency firm KordaMentha.
Mr Unicomb cited the collapse of the Carillion construction group in the United Kingdom where a parliamentary inquiry criticised a “cosy relationship” between independent consulting firms and the company.
In that report, the committee referred to a “cosy club incapable of providing the degree of independent challenge needed”.
“I think that [cosy relationship] is a possible situation here in Australia as well,” he said.
“You would anticipate that those parties would be able to identify and ensure that they are doing what they are supposed to do — detecting misconduct at the earliest possible time.”
The Carillion report recommended Britain’s Competition & Markets Authority consider breaking up the “big four” firms and detaching audit arms from the ones providing advisory services.
Major accounting firms have not been called to give evidence at the royal commission as they were not included in its terms of reference, which are restricted to banks, insurers, superannuation funds and wealth managers.
However, Mr Unicomb said if the royal commission was extended, the accounting firms should be called to answer questions about any perceived or actual lack of independence.
“If you were going to address what I see as a serious potential problem, you would need to call direct evidence from representatives of those firms,” he said.
Firms stick up for their independence
Mr Unicomb’s concerns about auditing independence drew a defensive response from firms contacted by the ABC.
A spokesman for Deloitte said the firm took its role as an independent assessor “seriously”, saying “we work within clearly defined procedures to check and maintain our independence and protect our objectivity”.
A spokeswomen for EY said the firm “has extensive independence and quality standards to ensure that all of our work is appropriately performed”.
“As part of our client engagement and acceptance procedures we make sure we don’t have a conflict of interest, and confirm the governance arrangements,” she said.
KPMG and PwC were contacted by the ABC but declined to comment.
ASIC aware of its shortcomings
Mr Unicomb agreed with criticism in the royal commission interim report that ASIC had erred on the side of deals such as enforceable undertakings rather than taking a tough line on criminal or civil prosecutions.
“Given the seriousness of what has emerged, I would have anticipated there would have been other enforcement remedies including civil penalty and civil action,” he said.
Mr Unicomb said efforts by ASIC to use negotiation, persuasion and cooperation to crack down on misconduct had resulted in a questionable relationship with its targets.
“It could be construed that they are actually too cosy in the relationship ,” he said.
The ABC asked Mr Unicomb if he was surprised at criticisms level at ASIC by the Royal Commission interim report given his two decades at the corporate regulator.
“No — I haven’t been shocked at all. Most of the evidence from what I understand has been know to ASIC and APRA.,” he said.
“ASIC and APRA certainly should have been more proactive in taking civil and criminal action where warranted.”
Despite calls from Labor to extend the royal commission to hear more cases, Commissioner Kenneth Hayne remains determined to stay on schedule to deliver his final report in early February.
This article was published by ABC News on the 5th of October 2018.
Peter Ryan is the ABC’s senior business correspondent. With more than 30 years of journalism experience, he contributes to a range of ABC News programs including the flagship radio current affairs programs AM, The World Today and PM, in addition to ABC News Channel and ABC News Online. Peter is a former ABC business editor, Washington bureau chief and head of TV news and current affairs in Melbourne. Peter was the founding editor of Lateline Business and was executive producer of the ABC’s Business Breakfast program. Follow him on Twitter @Peter_F_Ryan.