Audit news round-up - Deloitte top of the world, PCAOB finds audits lacking

Deloitte overtakes PwC to become world’s most valuable commercial services brand

For the first time in 10 years, Deloitte has overtaken PwC to become the most valuable commercial services brand, with their brand value increasing by 42% to $29.7bn, according to the latest report from Brand Finance.

The Big four still dominate the rankings despite a number of controversies, with PwC remaining the most valuable brand in both the assurance and tax services lines, while EY has the second highest brand value among the Big Four across all three service lines – assurance, advisory and tax.

David Haigh, CEO of Brand Finance, said: “In recent years we’ve seen a decline in dominance across the Big Four commercial services brands, with auditors criticised for failures in identifying irregularities across the books of major brands. Accountants simply must do more to restore trust in financial reporting.”

KPMG held its spot as the 5^th most valuable Professional services brand, valued at $13bn, despite facing recent controversies. BDO moved up a spot to 16^th most valuable commercial services brand, with its brand value rising 14% to £3.3bn, and came in the top 10 professional services brands. 

PCAOB finds KPMG and PwC and affiliate ‘lacking’

PCAOB, the American accounting oversight board, has released reports that found deficiencies in audits of US-listed companies by KPMG in the UK, Norway and South Africa and PwC in France and Canada.

The inspection team at PCAOB (The Public Company Accounting Oversight Board) found “matters that it considered to be deficiencies in the performance of the work reviewed” in its 2018 inspection report for KPMG UK and Norway and PwC Canada and France, and in its 2017 report for KPMG South Africa.

In four out of five cases, the PCAOB found: “Certain deficiencies were of such significance that it appeared to the inspection team that the firm, at the time it issued its audit report, had not obtained sufficient appropriate audit evidence to support its opinion that the financial statements were presented fairly, in all material respects in conformity with the applicable financial reporting framework and/or its opinion about whether the issuer had maintained, in all material respects, effective internal control over financial reporting (ICFR).”

Deloitte Partners set for average pay-out of £882,000

Equity partners of Deloitte will receive an average profit share of £882,000 for the year to June 2019, a rise of 6% on the previous year – up from an average of £832,000.

This comes after Deloitte UK reported a revenue of £3.97bn in its yearly report, representing an increase of 10.9% for the year ended 31 May 2019.

Equity partners make up 699 of the firm’s 1,070 partners – the rest of which are salaried and do not receive profit distribution.

Deloitte’s revenue from Audit and Risk Advisory services grew by 8.1% to £1,110m (of which Audit & Assurance was £582). Consulting increased by 9% to £952m, Financial Advisory by 10.5% to £507m and revenue from Tax and Legal services rose by 17.8% to £862m.

Distributable profit was £617m, up from £584 in their 2018 report, which benefited from a one-off gain on the sale of an investment, lowering provisioning charges and currency gains. Without this, distributable profit would have been flat.

The firm’s total tax contribution was £1,057m in 2019. This was made up of £638m of taxes collected on behalf of HMRC (VAT, PAYE and employee national insurance) and £419m of taxes borne by the firm (partner income taxes, national insurance, corporation tax and employer’s national insurance).

Sports Direct faces investor rebellion at AGM

High street giant Sports Direct is facing an investor revolt against its board at its September AGM, as it faces the prospect of becoming the first major UK listed business to fail to appoint an auditor.

Concerns have been raised by Pirc, a shareholder advisory service, over the company’s failure to publish its annual results, the disclosure of a £605m Belgian tax bill, and a decline in its share price. Pirc has recommended that investors vote against senior management at Sports Direct, including opposing the re-election of Mike Ashley, who is the group’s founder and chief executive, and a number of other board members.

Glass Lewis, the world’s second largest proxy adviser, warned of an ‘audit succession crisis’ which could see the company failing to appoint an auditor after it parted ways with Grant Thornton, Sports Direct’s auditor of 13 years. The proxy adviser has also advised shareholders vote against the re-election of Ashley, saying he was “inextricably linked with myriad controversies, past and ongoing” but did not go as far to suggest voting against other board members.