Big Four Firms Test Audit Safeguards as Consultancy Booms

From the Dossier

Entry 19 of 26. Section B: Industry-wide structural erosion. Back to the Dossier

Summary

Consulting now comprises nearly half of Big Four revenue. Advisory fees topped $77 billion globally, eclipsing the nearly $53 billion in audit fees. Since 2010, consulting revenue has more than doubled while audit practice grew only 24%. The SEC has been alarmed; EY paid a record $100 million settlement for ethics violations. Former Big Four auditor Stephen Rowe warned that the culture itself could deteriorate to the point of “large scale frauds again”.

Source description

Earlier coverage of the conflict-of-interest question that later produced EY’s failed Everest split: as consulting overtook audit as the Big Four’s biggest profit engine, US regulators grew concerned that the advisory relationship could compromise auditor independence. Documents a $100 million SEC settlement against EY for ethics violations and a $7.9 million fine against PwC for mislabeling consulting work sold to audit clients as audit-related.

Credibility assessment

Bloomberg Tax’s regulatory beat reporting and SEC sourcing place this at High independence. Under Rule 4, the revenue figures are verifiable data. The piece documents a structural incentive problem that predates the specific scandals: consulting revenue growth is the underlying driver of the conflicts of interest that manifest in scandal after scandal.