Evidence from the big four accounting firms shows cost overruns in up to 50% of audits

The big four accounting firms are failing to charge some of the UK’s largest companies the full cost of inspecting their accounts, raising fresh concerns that the auditing industry is failing to scrutinise leading businesses properly.

The information has been released by the Commons business, energy and industrial strategy (BEIS) select committee, on the eve of the publication of its report into the “future of audit”, which was prompted by a wave of accounting scandals at stock market listed companies such as Carillion, Tesco and Patisserie Valerie.

UK public companies are required to have their annual accounts audited. An auditor is appointed by a company and is supposed to be confident that financial statements are “free from material misstatement, whether due to fraud or error”.

On Monday, the BEIS select committee released correspondence with PWC, Deloitte, KPMG and EY, which showed evidence of how the full cost of auditing company accounts was not always charged to clients; information that appears to support industry critics who argue that accounting firms can use auditing as a “loss leader” to gain more lucrative work from clients.

The letters showed that half of audits in the last five years at Deloitte and PWC ended up costing more than 10% more than originally budgeted. EY said it had cost overruns on 32% of audits, while KPMG said it did additional work 16% of the time.

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