The £50m accounting racket
Fines for botched audits go to industry group fighting reform
A POWERFUL industry body opposing a major shake-up of the Big Four accountants is cashing in on the failings of auditors.
The Institute of Chartered Accountants in england and Wales (ICAeW) has collected more than £50m in fines levied on firms that botched audits.
Its coffers were further bolstered yesterday when KPMG was fined £5m for failing to spot a massive black hole that nearly destroyed the Co-op Bank.
The fines help fund the ICAeW’s work, including its opposition to some proposals to reform the Big Four aimed at improving the quality of audit work.
Critics said the rules are farcical, and mean the chief cheerleader for big auditors is using cash intended to punish them to campaign on their behalf.
Professor Prem sikka, of the university of sheffield, said: ‘ The KPMG fine is another windfall for the ICAeW.
‘They use that money to reduce the fees that firms pay, and they are campaigning against even the modest reforms that have been proposed.
‘so KPMG know that all this is doing is giving money to a campaign designed to protect them and the rest of the Big Four. The whole situation is a farce. And it just shows how incompetent the accounting industry is.’
The fines are levied by the Financial Reporting Council, a watchdog which polices big accountants.
For investigations started before 2016, the money must be paid to the ICAeW. Its accounts show it has been given more than £50m in penalty payments since 2012.
Fines raised from audit investigations which begin after 2016 go to HM Revenue and Customs.
The ICAeW is responsible for licensing chartered accountants and overseeing the profession. It is led by accountants – and its vice-president, David Matthews ( pictured), is a KPMG partner. The organisation has close contact with the Government, with its employees attending 12 meetings with business ministers last year.
It has been vocal in opposing some key industry reforms, such as a break-up of the Big Four and joint audits, where FTse 100 companies are required to hire both a larger beancounter and a smaller one, to broaden competition. Chief executive Michael Izza hit back last month at proposals by the Competition and Markets Authority to make the industry more effective. He said: ‘some of the measures could prove counter-productive, pushing up costs for businesses and consumers while doing little to improve quality or increase choice.’ The ICAeW is given fines money because it has a role in funding tribunal work in the run-up to a penalty being announced. In 2012 it got £100,000. This rose to £1.3m in 2013, and to £10.5m in 2016. Last year, it picked up £16.3m from FRC fines and recovered costs – 13pc of its income.
Labour MP Peter Kyle, a member of the Business select Committee, said: ‘We can’t have a situation where accountancy firms are fined for malpractice and the body that’s campaigning to slow down reform is the beneficiary.
‘It seems perverse that such a system still exists in 2019, in a post-financial crash world.’
The ICAeW said that it has contributed £60m to FRC investigations in the past 20 years. It added: ‘As a professional membership body with a Royal Charter to act in the public interest, we use the money from recovered fines to fund activities and projects that are in the public interest and that will have the right impact.
‘Chartered accountants accept the need for reform and are working with all parties to produce effective recommendations for regulation and legislation which will improve quality and increase choice in the market, while ensuring that audit meets the future needs of British business and wider society.’