Big Four alumni 2018: who’s working at the audit regulator?

As Big Four audit firms come under increasing pressure amid concerns about market dominance and conflicts of interest, Philip Smith asks how independent the Financial Reporting Council is as the regulator

It is of course not just the boardrooms of the FTSE 100 that stand accused of being ‘captured’ by the Big Four audit firms; it is an accusation that has been thrown at the accountancy profession’s regulator, the Financial Reporting Council (FRC).

The Kingman review, which will reveal its initial findings before Christmas, was set up to investigate whether or not the FRC was ‘too close’ to the Big Four, as well as considering wider governance and leadership issues.

While it is inevitable that there will be some former members of the Big Four in its ranks, the FRC did appear to have a disproportionate number in senior positions until recently, with virtually no senior executives or board and committee members drawn from mid-tier firms.

However, Accountancy’s latest analysis, conducted in November 2018, reveals that there have been some positive movements since the 2017 survey, with the number of Big Four alumni pacing the corridors of the FRC’s offices in the City down slightly.

Changes at FRC board level

The most obvious change is that Paul George, the regulator’s corporate governance & reporting executive director and ex-KPMG partner, has relinquished his position on the FRC’s main board. Likewise, he no longer sits on the FRC’s Codes & Standards Committee, which is still chaired by former EY senior partner Nick Land.

But George is not the only Big Four alumni to no longer hold a seat on the main board – the July [2018] departure of audit & actuarial regulation director Melanie Hind [née McLaren] (ex-PwC) and Roger Marshall (also ex-PwC) has reduced the number of former Big Four partners on the board to two (Nick Land and Mark Armour, another ex-PwC partner).

It is revealing to note that Hind and Marshall’s places on the board were not filled by other Big Four alumni: Mike Suffield is ex National Audit Office, where he spent 21 years, most recently as lead director after 21 years at the organisation, and trained at Coopers & Lybrand, who is acting replacement for Hind, does not sit on the board. Although the number of board seats has increased from 13 to 14, there is not a single qualified accountant among the new faces round the table.

This is possibly a case of the FRC getting its retaliation in first and with the imminent departure of Stephen Hadrill as chief executive, likely to be in early 2019, more changes can be expected irrespective of the outcome of the Kingman review.

But the fact remains that, among the senior executives at the FRC, nine out of the 16 have come from one of the Big four firms, with five alone coming from PwC. This is an imbalance that critics will find hard to accept.

For detailed analysis and league tables of the Financial Reporting Council and Big Four alumni, click PDF iconhere

Read our exclusive FTSE 100 and Big Four alumni survey: who are the real power brokers [published 10 December 2018]

About the author

Philip Smith is contributing editor of Accountancy

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