If you're a Big Four partner, Kari Hale must seem to occupy a terrifying position. A former Deloitte and Andersen partner himself, Hale monitors the work of the Big Four at the Financial Services Authority, to ensure the efficient operation of no less than the capital markets as a whole.

Hale is not, however, about to start landing Big Four partners with huge fines, or seek to discipline them for breaches of professional practice. His role is not to regulate, but to draw up contingency plans should the unthinkable happens and one of the Big Four disappear. Not only that, but with the government taking an interest in the structure of the UK audit market, he is also a key opinion former on the inside.

Hale started his career at Andersen. He had wanted, he says, to head towards a 'corporate finance sort of career. 'I discovered I was stimulated by the work at Andersen.'

When Andersen became Deloitte, he became a Deloitte partner too. So he should know about what the risks facing the Big Four are, in that sense. He says he will certainly lose part of his stake in Andersen.

'We have not reached six years after the dissolution of the partnership within which people can lodge claims. I do know we will lose some money,' Hale says.

Andersen experience 'informs' his work more than it ‘colours’ it, he says.

'I have a fairly clear understanding both of the reality that there are risks to the continued existence of any of the Big Four, and a fairly clear appreciation of what sort of iceberg might sinks one. It’s one of the issues that we observe closely in the context that the markets are significantly reliant on the services provided by the Big Four.'

He doesn’t expect the Big Four to become the Big Five any time soon.

'It's unlikely there will be an organically developed competitor to the Big Four in the medium timeframe by which I would say five to ten years. We have a concentration risk.'

He defines his role. 'We have to check whether they are conducting affairs in a way that appropriately mitigates the risk. We also need to think the unthinkable and prepare with appropriate contingency plans.'

Avoiding the iceberg

There are two icebergs in his view. 'Litigation or a serious regulatory breach and the reputational impact of that.' And he has already formulated plans to tackle them.

'There are two things we can do. We can work with the firms and with other agencies to seek the best mitigation against the risks that we can have. We can make sure the firms have the quality focus. Are they conducting audits to the right standard? Is regulation supportive of delivering those desirable outcomes?'

He is disappointingly, though understandably, coy about the contingency plans if it all goes wrong .

'We are continuing to work on them, and it would be premature to say anything now.'

So what about him? He mentions that he had potentially seen himself as an investment banker when he was training at Andersen, and at the FSA, clearly sits astride the investment and accounting communities. But he avoids taking sides and slotting himself into a pigeon hole.

‘I see myself as an accountant and as a business adviser,’ he says, neatly avoiding any too obvious affiliation.

He also has an apt metaphor for what accounting is all about. ‘In many ways I would compare the skills of accounting and the general capabilities one is trained in as an accountant to being able to play scales. You have to be able to do it to play music but playing scales does not create music. The real skill is to be able to use the competence.’

Of the accounting world – the circuit of institutes, Big Four partners and finance directors – he is inspired.

‘I find the people in the institutes and in the Big Four firms are consistent in their thinking. They are concerned about issues, and continue to display a professional ethos and interest in the welfare of capital markets,’ he says.

It has its limits. ‘One has to be aware that there’s a commerciality in the activities explicitly of the Big Four and perhaps more implicitly in the institutes in so far as safeguarding the interests of their members. We have a subtly different agenda as a regulatory agency.’

Hale could be seen as something of an outsider in the FSA, but he is slightly taken aback by this suggestion.

‘This is an organisation of over 2,500 people, of those only about 750 were here when the FSA was formed at the end of the 1990s. Probably some 25-30% of the FSA have joined at the same time or since me. I have been here for as long as nearly a quarter of the organisation.’

He does say, however, that there is a clear difference between working in the private and public sector, and it is clearly something that he has reflected on deeply.

‘Clearly there are differences. The big thing is that the FSA has a very public service ethos.’

The lack of a profit motive and the constant growth of private sector organisations makes a difference, he thinks.

‘Everyone has strong views which can be mutually exclusive as regards the right course of action. The culture is different. It’s very welcoming and very open in the sense that people are happy to welcome you and embrace the thinking you bring, but they may be challenging to it.

‘In the private sector it is easier. Organisations can through time alter behaviour and strategies in pursuit of a definable and measurable outcome. This is an organisation that does not seek to grow actively.’

The growth issue is, he says, one of the things that is most acutely different.

‘At Deloitte we used to grow at 10% and that enables you to make room for a new generation of partners to come though each year. Here, we have so many directors and managers. Next year there will not be more directors and managers. The value add in the public sector thus becomes very different. It’s less tangible and in a benign sense it’s more political.’

Actualisation

The nature of people’s ambitions is thus different. ‘Actualisation is often more about the good that they do than it is about the reward that they extract or promotion they seek to achieve. When we try and change behaviour we have to persuade people it helps them to do their job better. It’s a much more textured and complicated challenge. I have a great deal more sympathy now for those who work in the NHS and in the public sector as a whole as a result.’

As far as his own ambitions and goals are concerned, Hale is not looking beyond his current role at the moment.

‘I am thoroughly enjoying what I am doing. The goals I am driving towards here I have not yet achieved. I expect to be contributing to the management team here for some time.

‘Will I become a career regulator? I have more of an open mind to that.’

But, he seems to warm slightly more to the idea of going back to the private sector. ‘I could see myself moving into the commercial world or back into private practice.

‘One of the things my work has done is it has brought me into contact with the Big Four and the importance of their work. I think I could see myself going back into the auditing world. I have a renewed passion for and sense of the value of a good and external audit.’

THE IFRS CHALLENGE

Supervising the potential impact of the possible demise of the Big Four is one of the two big issues Kari Hale is faced with. The other matter he is involved in, as if monitoring the health of the Big Four were not enough for him, is IFRS. What is his take on the standards, which are currently of course going through a rocky patch?

'There's a valuable goal as regards greater consistency in international reporting,' he says.

'It is clear there are very significant costs of transition,’ he says.

His reflection is that we may only find out in the next 18 months whether or not IFRS is going to work.

‘The interesting and unresolved question that we will get the answer to in the next year or two is: are we at the bottom of the change curve and about to come up on the other side, or have we changed to something “worse”.’

‘A lot of people are at the bottomof the curve. The question is oncepeople have raised their level of understanding and they have absorbed the information will they climb upthe other side? Can they understand all these disclosures? Is it useful that all these people are all reporting under the same framework?’

‘They may feel this is simply producing arcane, theoretical, elegant but impractical, not usable information. I wouldn’t downplay that there’s an issue now that finance directors are producing numbers they do not intuitively recognise. Boards are being presented with numbers they find comparatively impenetrable.’

Everyone is ‘not yet convinced’ he says.