Why the Big Four give audits a bad name

Why the Big Four give audits a bad name

According to Stephen Broderick, global CEO of FirmDecisions, the role of the profession in scandals such as Carillion has led many to question the social utility of the audit function

This guest post was written by Stephen Broderick, global CEO of FirmDecisions, the world’s largest independent global marketing compliance specialist.

Too many auditors, not enough accountability?

The UK has the highest number of professionally-qualified accountants per capita anywhere in the world, a total of 360,000. According to a recent FT report, this represents more than a tenth of the global total, more than in the rest of the EU combined, and more than ten times as many as there are GPs.

And yet, widely-publicised tax avoidance schemes provided by the industry have attracted significant negative media coverage and hostile public sentiment. And the role of the profession in scandals such as Carillion has led many to question the social utility of the audit function altogether, particularly the services and oversight provided by the so-called Big Four.

Challenges in the media industry

It’s not much better in advertising, an industry where I’ve worked for more than 20 years, helping companies and brands understand how their money is being spent by their media agency and technology partners, and ensuring they have fit-for-purpose contracts to get the transparency they need. Over that time, the media industry has changed out of all recognition, driven by the digital revolution. Digital has made advertising much more complex, with many more links in the digital media supply chain. This makes it harder for advertisers to know how their media budgets are being spent and what they’re getting in return.

For much of the twentieth century, advertising was comparatively more straightforward. Brands bought media space from a variety of media owners and vendors, always via a third-party media agency. The agency made commission on transactions, and ads were presented to consumers by the media. With digital, the process of reaching consumers has many more intermediaries – the agency, trading desks, demand- and supply-side platforms, ad exchanges, and platforms handling data, targeting and verification.

This complexity means that more and more of an advertiser’s budget is eroded before it ever reaches a publisher – a phenomenon known as the Tech Tax. My colleague Federica Bowman explored the challenges of the Tech Tax in a recent article for Accountancy Age. Securing total transparency of where advertising budgets go after they’ve left the advertiser is critical for brand owners. The problem is, many brands have outdated – sometimes unsigned – contracts with their media agency and tech partners that are not for purpose. Many include clauses that effectively waive marketers right to know where their money has gone, why, and with what benefit.

Muddying the waters

The Big Four have made no secret of their ambitions in the marketing services space. They are making big investments in creative, digital, and media, including media trading. And because of their track record in audit, some of the big consultancies are also offering auditing and contract compliance services to their advertiser clients. This presents challenges and conflicts of interest, particularly where the same firm both transacts media inventory AND audits media buying performance for the same business. For me, this is a case of marking your own homework, or having your cake and eating it.

What’s more, there is now evidence that some of the major media agency holding groups – we call them, guess what, the Big Six – are seeking to influence advertisers’ choice of contract compliance auditors in the terms of advertiser-agency contracts. In some instances, these terms can include limiting the choice of auditors to one of the Big Four international accounting firms.

This practice recently led the representative body of chartered accountants, the ICAEW, to write to the media agency groups and point out that this is both unnecessary and unhelpful because such terms restrict market choice and competition. They highlighted the fact that such ‘Big Four-only’ terms have already been outlawed in the statutory audit market.

As leader of the world’s largest independent marketing contract compliance specialist, I wholeheartedly support the initiative, sentiment, and intent of the ICAEW’s communication to media agency groups. It’s often not in advertisers’ best interests for the media contract compliance work to be done by the Big Four auditors. This is because they’re not specialists in media and marketing. They’re generalists. By attempting to deliberately exclude advertisers from specialist expertise, contract clauses such as these clearly limit the options brands have to receive expert consultancy, advice, and best practice.

What brands need from contract compliance auditors

There are three principal qualities advertisers should look for their contract compliance auditors.

  1. They need specialist knowledge and experience in media – in the marketing services industry. Ideally, some members of the team will have worked in senior financial roles in media and digital agencies, and in tech platforms. This will enable them to know how finances are managed in media.
  2. Contract compliance auditors need qualified accountants in their business. Despite the bad odour hanging over much of the auditing industry currently, professionally trained accountants know the right questions to ask to exacting, international standards.
  3. If you’re auditing contract compliance and media inventory trading, you should work in a business that offers no services that could compromise the independence of advice given about performance; about the efficiency or otherwise of media buys. They should have no skin in the game.

The way forward

In 2016, the U.S. Association of National Advertisers published a study providing the first evidence of non-transparent practices in the U.S. media market. Soon after, the ANA published a report of recommendations on how advertisers can drive transparency into their media and marketing operations, which FirmDecisions wrote with Ebiquity. Three of the seven principles of the report cover advertiser-agency contracts – contract content (transparency), contract audit rights, and contract governance.

Contract compliance should be undertaken by an independent, specialist business with no potential for conflicts of interest to cloud the advice advertisers receive. This means expert accountants whose business is not involved in transacting media inventory. For me, for the ICAEW, and for increasing numbers of advertisers, this means specialists and experts and not one of the Big Four.

Effective financial contract compliance in the ever-evolving digital marketing supply chain is the key to making the media industry more transparent, but this can only be achieved when advertisers work with the right kind of partner.

 

 

 

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