Australia’s “big four” accountancy firms should be put under the spotlight of the banking royal commission, according to a British investigative journalist who has written an expose on their activities overseas.
Richard Brooks said the practices and behaviour of the firms should get the same forensic treatment as the banks.
In his book, Bean Counters — The Triumph of the Accountants and How they Broke Capitalism, Brooks makes the case PricewaterhouseCoopers (PwC), KPMG, Deloitte and Ernst & Young (EY) have massive conflicts of interest because they sell consultancy services to the same companies whose accounts they are meant to be independently auditing.
“Their primary interest is not getting the numbers right, it’s getting the money in for themselves,” he said.
The award-winning journalist, who was a tax inspector for 16 years before joining Private Eye magazine, said the dual roles of the “big four” had had a disastrous impact on the global economy.
“If they had done their job properly, the financial crisis would not have happened on the scale that it did. It would not have become the catastrophic economic event it became,” he said.
“If you look back to the seeds of the financial crisis, if you look at the companies that were selling ludicrous sub-prime mortgages, the state of those companies should have been spotted far earlier by their auditors.
“The top four sub-prime auditors in the US were audited by KPMG. The mortgages on their books were clearly, evidently bad.”
Mr Brooks said he would like to see PwC, KPMG, Deloitte and EY placed under the microscope at the royal commission.
“They don’t just audit, they advise on financial transactions. They advise on financial products. They package up derivative products,” he said.
“They are right in there and they are heavily conflicted.
“We are relying on them to tell us everything is sound. You can’t review that industry without looking at the auditors.”
‘They should sit outside the financial system monitoring it’
Mr Brooks said the “big four” accountancy firms had become insiders in the financial system, when they should be forced to maintain outsider status.
“When I met one or two of the senior partners of the ‘big four’ firms in the UK, one of them, when we were discussing the financial crisis, talked repeatedly of, ‘all of us in the system’,” he said.
“He [the partner] considered himself as part of the financial system. I thought they should sit outside the financial system monitoring it.”
By his estimation, the “big four” make around two-thirds of their income worldwide from advising businesses, with the other third coming from auditing.
Increasingly, governments are paying big money for their consultancy services.
Once again, he saw conflicts of interest.
“When it comes to providing policy advice to governments, they clearly favour the kind of advice that is then going to generate more work for them,” he said.
“In the UK, they have been very active redesigning the health service.
“The NHS has been subject to a lot more competition and fragmentation thanks to advice from consultants and those consultants then advise these new smaller bodies on how to compete with each other.”
“That’s the management consultancy model. That’s how you survive. You create your own demand.”
Steve Currane is Europe Correspondent of the ABC.