Executive Summary
Authors: James Brackley, Adam Leaver
The audit industry is plagued by poor performance. Auditors are failing to show independent judgement or professional scepticism, or provide adequate warnings when a company is in a risky financial position or directors are behaving recklessly. This report finds that auditors are routinely failing to perform their core function. Three in four audit reports failed to raise ‘going concern’ alarms before a company went bankrupt. Of the Big Four auditors, EY performed most poorly – warning of going concern risks for just 20% of collapsed firms. Auditors outside the Big Four were even worse – providing warnings for just 17% of collapsed firms on average. But in terms of reward, average pay for partners at the Big Four firms rose by 31%, reaching £872,500. Average pay for Deloitte partners reached over £1 million. Fines were also negligible. From 2015 to 2022, regulatory fines for poor audits were on average just 0.16% of revenue and 0.85% of profits for Big Four firms. These are too small to materially affect partner pay or change behaviour. The report recommends systemic and far reaching reforms, including a new regulator, a new mission for audit, a reformed culture within the audit industry, greater partner accountability, legal separation of audit and non-audit services, new auditor-specific qualifications, skills, and training; and greater coordination between the professional body and universities to create accredited educational pathways.