THE RECENT CREDIT crisis shook the global economy to its core and financial services providers have raced to demonstrate their responses to the issues it uncovered, accountancy firms among them.
Risk is now a buzzword and the Big Four are competing to yell it loudest but have they instilled changes at the heart of accountancy, or are they just paying lip service?
The Big Four each have impressive training schemes taking on hundreds of graduates a year; in theory, these bright young things should be the first to reflect crisis-related change because learning programmes can be quickly altered and students are not yet set in their ways.
Big Four trainees agree that the firms have put risk at the core of their learning, saying they are only too aware of the consequences of slipping up.
Stuart Lyons, tax assistant at KPMG, said his firm is “hammering home the issue”, adding: “The current intake is hyper-aware of the issue of risk; it has changed the priorities of learning.”
Topics such as treasury management – once relegated to the hazy sidelines – have been thrust to the fore, together with admonitions to be vigilant for early warning signs that all is not well with a company.
Going concern enjoyed similar treatment according to Tom Metcalf, a former Deloitte trainee: “There’s been a huge focus on it; all the partners are very aware of the issue and technical emails on it fly around all the time.”
Those observers who question auditor scepticism, saying a distinct lack of it contributed to the crisis, might be reassured by the testimony of one PwC trainee, Clemmie Newton-Taylor. The issue had high priority throughout her training, with case studies drawn from the financial crisis to spook students into scepticism: “I think they definitely made it seem an important part of our training and placed an emphasis on bringing it to the forefront of our minds,” she concluded.
So it seems the Big Four were hot off the mark when it came to learning the lessons of the crisis and passing them on to new recruits. However, another important change grew out of those difficult years – their need to save cash.
Other students told Accountancy Age that internal cost-cutting has been a major emphasis for firms – as with most businesses – and this could be to the negate their increased focus on risk awareness.
It has been suggested that top-down oversight from senior audit partners has replaced multiple checks by lower-level staff. Firms will argue the changes introduce more effective audit, but there are questions as to whether the new model really increases rigour, or is instead merely maintaining the level of rigour at lower cost.
One trainee said that, far from probing clients more deeply, being “un-sue-able” is the primary goal of their firm: “We don’t necessarily work to find out what’s wrong with a client, we just do enough to put us beyond reproach.”
Another newly qualified accountant pointed to risk-taking nature of the financial system as a whole, saying that, despite changes in trainee programmes, the new accountancy recruits could struggle to influence clients’ behaviour through the audit process. “All [financial services] businesses are geared up for risk-taking – controls are just tagged on as an afterthought,” they concluded.
While audit firms might have revamped their training, recruitment policies are still geared towards go-getting graduates as opposed to more cautious bods. At the same time within the financial services industry, bonuses remain attuned to profit, and profit means risk-taking – implying that clients may not be minded to heed auditors’ remonstrations.
On the plus side, accountancy lecturer Dr Andrew Holt of Kingston University said that his students remain conscious of post-crunch risk control. Interest in audit and financial control classes has soared since the crisis began and the university is considering new classes to meet the demand, including modules on forensic accounting and advanced financial statement analysis.
There is no doubt that much work has gone into the Big Four response to the crisis, something that has been matched by activity from the institutes. Modules have been added or updated since 2008, strategic reports are flowing thick and fast and the Financial Reporting Council has backed the whole effort with a host of its own consultations.
It might be unfair to berate the Big Four for cutting costs during the economic crisis – all businesses have the right to streamline and accountants should be better at it than most.
However, it is questionable how far the risk-aware, hyper-sceptical mood will endure within the industry. Fresh-faced trainees have had the issues drummed into them but, under the tutelage of more experienced, fee-focused seniors, holier-than-thou attitudes might not carry much weight. With clients eyeing the bottom line – both in terms of profit and audit fees – the pressure to fall in step with old attitudes could be too strong to resist.
Phil Pierce and Ben Woolrych, partners at FRP Advisory, have sold out of administration the business and assets of Kiveton Park Steel Limited
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