Britain's big four auditors failed to raise the alarm in 75% of the UK’s big-name companies that have collapsed since 2010, new research has found.
Following several high-profile failures at BHS, Carillion and Thomas Cook, Sheffield University’s Audit Reform Lab pointed to a lack of warnings from the accountants in an FT-cited report on Monday.
Ernst & Young gave going-concern warnings for one in five firms it had audited in the year before they failed between 2010 and 2022, the think tank found.
PwC flagged up warnings in 23% of such cases, while Deloitte and KPMG gave going-concern cautions in 36% and 30% of instances respectively before collapse.
“There are serious concerns that auditors are not challenging enough,” researchers said in the report.
Of 250 liquidated companies studied, 38 declared dividends in their final set of accounts.
Ten did so despite reporting losses, while two others had negative net asset balances.
Such going-concern warnings are required from auditors if risks appear signalling a company’s collapse.
Tougher rules, including a new regulator, have been proposed for the audit sector, but are yet to come into force following delays.
Though financial penalties have been imposed on auditors over such failures, including multimillion fines for PwC and EY most recently, the Audit Reform Lab said these had been insufficient.
Average pay for Big Four partners climbed almost a third to £872,500 between 2020 and 2022, the report pointed out.
“Until the culture of audit is reformed and a new and more effective regulator is in place, partners at audit firms will continue to reap huge financial rewards, despite continued audit failures that harm business confidence and our economy more widely,” researchers said.