NOT EVEN HALFWAY through November, and already it is proving a tough month for high-profile firms.

PwC is really up against the wall, pilloried by negative press for not one but four unfortunate-looking audits.

It is hard to pick the most embarrassing. The high-profile collapse of MF Global uncovered suspicious handling of clients' funds, raising questions as to why PwC failed to flag up the problem.

Not new news, but headline-grabbing nonetheless, the Accountancy and Actuarial Discipline Board announced it will see PwC in court (the International Dispute Resolution Centre, to be exact) over alleged failings related to JP Morgan.

Unfortunately for PwC, those failings tally closely with MF Global-related accusations. The Financial Services Authority claims reports logged by the firm in respect of JP Morgan Securities' compliance with Client Asset Rules were sub-standard for the six years to 31 December 2008.

The Client Asset Rules draw strict lines between company and client money to prevent one bleeding into the other. A UK PwC spokesperson insisted procedures have been tightened up since the JP Morgan case, and pointed out MF Global is audited by the firm's US arm.

Nevertheless, it is an unfortunate concurrence that sharpens the focus on procedures and controls.

And we're not done there.

Sub-prime lender and former client Cattles is bringing action against PwC which could cost the UK number-one firm £840m, The Telegraph recently reported.

PwC was also recently forced to defend its audit of collapsed nightclub operator Luminar, saying: "Our opinion in Luminar's annual report for the year ended 26 February 2011 clearly highlighted the severe issues the company faced in relation to its ongoing business. We do not include emphasis of matter paragraphs lightly in audit opinions."

Not a stellar month by anyone's estimation.

But peers should not revel too much in PwC's discomfort, as the embarrassing public meltdown of camera maker Olympus has dragged Ernst & Young and KPMG's Japanese arms into its boiling wake.

Olympus has held up its hands to financial mismanagement, after its short-lived chief executive Michael Woodford asked questions about an unusually high consultancy fee paid during an acquisition, and was promptly sacked.

The company admitted that since the 1990s it has been "deferring the posting of losses on investment securities" and using advisors' fees and purchase funds set aside for acquisitions to smooth rough patches in its accounts.

Those in the accountancy-watching world have inevitably turned their gaze to the auditors, asking why no one flagged up Olympus's innovative use of funds.

KMPG Azsa, Olympus's auditor until June 2009, signed off its client's accounts in March of that year despite disagreements over the way it recorded the acquisition of medical equipment maker Gyrus, The Financial Times reported.

Tsuyoshi Kikukawa, then Olympus chairman, admitted in an email to Michael Woodford that Ernst & Young ShinNihon was engaged as a result of this dispute with KPMG, but E&Y also failed to flag up the problem.

The Japan Institute of Certified Accounts is to investigate the two firms' roles in the scandal.

Deloitte is the only Big Four player not to have hit the headlines for questionable work in recent weeks, but it shouldn't get too comfortable with its ephemeral halo.

The whole of Europe and the US have fixed their gaze on audit, and firms are facing an in-depth UK Competition Commission investigation, while waiting anxiously for the final audit reform paper from Brussels expected in late November.

It is not a good month to be accused of audit shortcomings, but at least the Big Four will have lots of practice fighting their corner.

EUROPEAN COMMISSION audit reform proposals could see major firms split down the middle, unable to perform both audit and non-audit services under the same umbrella.

Audit firms might also be prohibited from belonging to a network that provides non-audit functions, meaning, for the sake of argument, that PwC Audit Ltd would not be able to borrow consultants from PwC Business Services Ltd.

But what if auditors need friendly non-audit experts to help them along? What if risk managers and actuaries who currently lend a hand are no longer in the same firm, and close association between the two is forbidden?

PwC Audit Ltd might have to call on KPMG Business Services Ltd for help. But would KPMG be interested? If its consultants work on another firm's audit, independence rules might conflict them out of providing their own non-audit services to the company in question.

Such a situation would hog-tie the Big Four, and their clients probably wouldn't be too happy about it either.

INTERNATIONAL FINANCIAL REPORTING standards are on everyone's mind. Standard setters the IASB are running out of time to complete the last few crucial rules before the December deadline for US convergence, while UK equivalent the ASB is elbow deep in a consultation on IFRS for SMEs (FRSME).

Companies are interested because changes materially affect their business, and accountants are with them every step of the way - but how are the firms faring on the back of IFRS-inspired changes?

FTSE leaders switched to global standards in 2005 and smaller AIM-listed clients have since shifted over. Their accountants have been enjoying the fruits of this transfer, but do smaller firms have a seat at the table, or are they still waiting for IFRS cash and experience to drift their way?

Mid-tier firms say no. Andrew Minifie, general practice partner at 14th-largest firm Haines Watts, said the benefits of IFRS-related work are not restricted to the Big Four. "Many mid-tier firms do have experience of IFRS and can carry out consultancy work for clients," he observed.

Minifie conceded that the largest firms often have more experience of the global standards and this is "helpful" when it comes to winning clients, but said Haines Watts has already taken on IFRS-related work and is well placed to do more.

Conversely, he said IFRS issues might stop would-be entrants to the listed market, as it could be difficult for firms to gain the experience necessary to work on IFRS while only dealing with smaller, UK GAAP-using clients.

MacIntyre Hudson chairman Rakesh Shaunak was positive, saying leading firms outside the top six are fully prepared for IFRS. "We are up to speed technically - we have a team of experts, we train our clients, we convert accounts to IFRS - we are ready."

However, he conceded that the biggest firms have a head start due to the size of their clients, saying it is a "knee-jerk reaction" to seek out accountancy giants for IFRS-related work.

Despite this, experts are convinced it will not be long before the revenue and experience benefits of the new standards trickle down through the echelons of accountancy.

David Wood, technical director at ICAS, said they are "already filtering down", pointing to the ASB's FRSME consultation as evidence of smaller firms' increasing need to engage on IFRS.

However, he did concede that "clients will go where the expertise is". Complex companies may be more likely to call on the big six due to their sector-specific knowledge, whereas smaller competitors could struggle in some areas.

Kathryn Cearns, technical accountant at Herbert Smith, agreed that IFRS benefits will envelop smaller firms eventually, and said they already enjoy some advantages to make up for the early IFRS windfall enjoyed by the big six.

Rules surrounding the delivery of non-audit services are more relaxed when it comes to non-listed companies, she said, adding: "Mid-tier firms service a different market for different reasons."

Price advantages could also help smaller firms when it comes to delivering IFRS consultancy work, with relatively simple businesses such as manufacturers potentially tempted by cheaper accountants.

Complex companies such as banks and insurers will almost certainly stick to the top firms, however, as these are the only ones with the necessary experience.

Few stakeholders seem minded to claim that IFRS has widened the gulf between the top six and mid-tier firms. Smaller market participants are keen to appear ready and able to take on the challenge, while other stakeholders insist any advantage is only temporary.

ReesRussell partner Jonathan Russell was more strident, claiming IFRS changes "have been an area where the big firms have further differentiated themselves from the smaller firms". He concluded: "They have used it as yet another mechanism to further inflate their charges while smaller firms have just taken them in their stride as another regulatory change which clients expect their accountant to deal with as a part of their usual service."

Pricing arguments aside, it seems clear that, thus far, IFRS has added more to the coffers and CVs of the biggest firms, with mid-tier accountants jostling for crumbs at the edges.

If the ASB pushes for FRSME at the end of the current consultation, the mid-tier will have much to do helping their clients action the changes. However, for value-added services and the complex IFRS-related tasks, the top six could yet retain the edge when it comes to cashing in on the global standards.

LAST WEEK'S Audit Inspection Unit reports threw light on work at the top six firms, and optimists said they showed slight improvement.

A sub-board of the Financial Reporting Council, the AIU said this year's findings pointed to "as good, or even slightly better" audits, and institute members agreed they are "happy" with the results.

However, the AIU itself said it was hard to identify trends from such a small pool of reviews, suggesting celebrating 'as good or better' results - despite the number of unsatisfactory audits climbing - is a step too far.

Director Andrew Jones had ready excuses for the firms' continuing weakness in certain areas. Their size and de-centralised structure made it hard to achieve root-and-branch improvement, he said, while in some cases, last year's AIU recommendations had not yet filtered through to audits in the most recent review.

The ICAEW too was quick to offer explanations for shoddy audit work. Executive director of professional standards Vernon Soare described the problems as "isolated incidents" that are "not worrying" and "certainly not indicative of systematic or endemic failure".

This is despite the fact that year in, year out, the top six struggle to dissect management claims with appropriate scepticism, and are universally pulled up on tricksy issues like fair value and goodwill impairment.

When the two prongs of industry supervision - institutes and the FRC - are lining up to pat firms on the back for their lacklustre audit reviews, stakeholders should be worried.

Oversight and retribution are currently shared between them, and a forthcoming FRC consultation could see even more power concentrated in institutes' hands, as the Audit and Actuarial Disciplinary Board is considering offloading some of its responsibilities onto the ICAEW and its ilk.

When accused of a curious willingness to defend the firms, Jones said the AIU will not tolerate poor audit work, and is "holding firms' feet to the fire by going back review their work". He pointed out that the public reports are just the tip of a finger-wagging iceberg, and a much more detailed review is sent to the firm in question and its clients.

Vernon Soare displayed a similar confidence in audit inspectors, saying the body has been delegated power by the secretary of state and "has a serious job to do". He argued overseers often struggle to demonstrate objectivity but nevertheless, it would not be in their interest to 'find' improvements without supporting evidence.

The recent Office of Fair Trading decision to refer audit to the Competition Commission gave institutes another chance to nail their colours to the mast. CIMA said the market is "currently competitive", making the referral "arguably unnecessary under present circumstances". The ICAEW and ICAS were similarly reticent, questioning whether the commission had the teeth to impose successful remedies.

With the rest of the profession lining up to demand greater competition and investors concerned about Big Four market capture, the reluctance of industry bodies to get behind the zeitgeist is telling.

Institutes need the big firms to put graduates through their training programmes - just ask the ICAEW, which lost Ernst & Young learners to ICAS in 2000, reducing its student count by around 400 a year. This could make them reluctant to go against firms' best interests, and must make them think twice on touchy issues like competition.

The FRC too has been accused of regulatory capture, as it fills its boards with current and former members of the accounting elite. Accountancy Age recently reported on new appointments to the Financial Reporting Review Panel, of which a comfortable six in 13 came from the Big Four.

The plurality of institutes plus the FRC and its various boards are often cited as proof of thorough and overarching industry supervision. However, with top firms heavily over-represented on the regulatory scene and a complex web of funding and inter-dependence linking the various bodies, it is arguable that the pluralistic landscape is just variations on a theme, with no true independence or will to scrutinize problems.

Of course, top accountants make their way to firms' highest echelons, and it is these minds that we want working on tough issues like audit standards and regulation. However, their value is arguably diminished when the institutes and FRC boards resemble an old boys knees-up, and we should bear this in mind when examining the trappings of regulatory oversight, of which the AIU is just one feature.

IS IT ME, or are there signs of change at the top of the audit market? As someone who regularly scans the papers for chopping and changing among the Big Four and their largest competitors, it is relatively rare to see one of the top dogs losing an audit to a peer.

So this morning when I saw Aviva had ditched Ernst & Young for PwC, I counted myself lucky, in the way I imagine a bird enthusiast would do on seeing a flash of unusual plumage in a local park. Imagine my excitement (if possible) at later finding both PwC and Deloitte had lost and won major clients, all in the same day.

Although E&Y shed high profile company Aviva, they managed to wheedle Aegis Group away from Deloitte, which had been the brand management specialist's auditor since 2004. Deloitte may not have been too cut up, as it nabbed Canadian Pacific's audit from PwC, while PwC could comfort itself with the star prize of insurance giant Aviva's audit.

True, these changes still keep high profile audits firmly within the Big Four family, but they may be significant nonetheless. Since the financial crisis turned the spotlight on auditors, investors and shareholders have been uncomfortable with the evidence of auditor-client relations stretching back decades, and audit committees have felt themselves under pressure to justify tendering decisions.

It is hard to say what impact this has had. In some cases, the audit may have been put out to tender, potentially resulting in no change, but at least reminding management that there are other firms in the sea. It could be that such speculative tenders led to surprise bargains from rivals eager to steal a march on one another, pushing companies to switch auditor even if they hadn't planned to. And in some cases, management may have felt under pressure to make a clean break from the perceived lack of independent audit, actively seeking an alternative to a long-standing audit provider.

It will be interesting to see whether such chopping and changing is well received further down the audit market. Grant Thornton and BDO didn't get a look in, it's true, but mid-tier firms must nevertheless be pleased to see dusty old ties being broken and a new measure of dynamism entering the market. With no changes it would be impossible for non-Big Four firms to win larger tenders; perhaps these small shake-ups will reverberate, creating enough momentum to propel firms into the stratosphere of FTSE-listed clientele.

THE DEPARTMENT for International Development has committed £7m to help Afghanistan sort out its floundering financial sector, after Kabul Bank was brought to its knees by an insider loans scandal last year.

It is not yet known which auditor will be handed the contract - the project was only approved yesterday - but it will be interesting to see if a domestic firm is engaged, or whether the Big Four will fill the role.

A DfID spokeswoman suggested an Afghan firm would be preferable due to its knowledge of the local environment and language, Dari. However, Big Four contenders could argue their superior size and international experience make them well placed to get Kabul Bank back on its feet.

Deloitte almost certainly won't be in the offing as it recently got its fingers burnt, losing a USAID contract to advise the central bank, The Wall Street Journal reported. The contract was suspended after corruption fears caused a run on the bank, and Deloitte was criticised for failing to flag up the possible fraud.

USAID spokesman Lars Anderson said: "We don't believe that Deloitte can be held responsible for the fraud at Kabul Bank but we do want our technical assistance to be as effective as possible."

With DfID stumping up the cash, great emphasis will surely be placed on accountability and value for money. Undoubtedly there will be debates about strengthening local capacity via the contract; this could result in it being awarded in its entirety to an Afghan firm, or to a consortium of local firm(s) with international partners. The alternative would be engaging a firm with an existing presence in the country, with obvious contenders being PwC, KPMG and Grant Thornton.

With scant knowledge of Afghan firms' capacity and experience, it is difficult to say whether they are up to the task of auditing a bank accused of granting off-the-record loans to shareholders and their friends, including the brother of president Hamid Karzai. Millions of pounds in aid have been suspended until donors are satisfied the banking sector has cleaned up its act, and the Kabul Bank audit promises to be interesting and emotive.