The cloud of controversy hanging over the world’s four largest professional services firms seems to have cost the companies dearly, as Goldman Sachs has announced it will look beyond them when appointing its new UK auditor. Either BDO or Mazars are understood to be in line to become the first auditor in the multinational investment bank and financial services company’s history from outside the Big Four.
The largest auditing and consulting firms of the UK have endured intense scrutiny in the last 24 months. Since the collapse of outsourcing giant Carillion, talk of ‘breaking up’ the Big Four has been steadily reaching a crescendo, and earlier in the spring, a Parliamentary report even endorsed the separation of the Big Four’s accounting and advisory wings.
Allegations of conflicting interests and suspicion regarding firms which both monitor the financial health of firms and provide them with business advice has spread well beyond the likes of PwC, Deloitte, EY or KPMG, though. Grant Thornton, which began the year as the UK’s fifth-largest professional services firm, has had a torrid 2019 after long-term audit client Patisserie Valerie went bust, citing a multi-million pound black hole in its accounts. The firm has also been pilloried for its continued relationship with divisive retail giant Sports Direct, which critics say conflicts with British competition law.
In this atmosphere of intensifying criticism, it is perhaps unsurprising that some major clients of the professional services sector’s top table have started looking elsewhere for their auditing needs. The latest of the lucrative contractors to make such a decision is American multinational investment bank and financial services company Goldman Sachs. According to reports from The Telegraph, the UK wing of the global financial titan has shortlisted mid-tier competitors BDO and Mazars for its auditing mandate, snubbing the Big Four for the first time in its history.
The shake-up follows a battle between accountants for the contract that has cost some bidders “millions of pounds”. At one point, Goldman Sachs is understood to have held talks with Grant Thornton, but the Bank of England’s Prudential Regulation Authority (PRA) last year argued that the auditor lacked the right skills. As a result, sources have told the press that the Wall Street banking firm will decide between BDO, which is currently exploring a split of its audit and non-audit arms, and Mazars, the eighth-largest professional services firm in the UK, in the coming weeks.
The chosen candidate will replace PwC from 2021, though PwC will continue to audit the bank’s global business. The move to pick one of these firms is perhaps partially motivated by a need to dodge the negative press currently associated with the Big Four. Goldman Sachs arguably has enough of its own PR issues to worry about without its UK wing attracting attention with a continued Big Four association. Among a litany of other controversies, the firm was panned in the aftermath of the financial crisis of 2007–2008, where some alleged that it misled its investors and profited from the collapse of the mortgage market.
The news also follows rules from the competition watchdog, published last month. In its findings, the Competition and Markets Autority stated that big British companies should hire at least one auditor from outside the Big Four in an attempt to boost competition. While this stopped short of enforcing a break-up of the Big Four, it has still irked the quartet, and EY is even reported to have hired a top City law firm to see if it can successfully push back on the reforms.