the Bottom: The Case of the Accountancy Firms” (ISBN
1-902384-08-3) written by Jim Cousins MP, Austin Mitchell MP and
Sikka (University of Essex) provides authoritative evidence of some of
anti-social activities of major accountancy firms.
firms are at
the heart of the global race-to-the-bottom that shows little concern
rights of stakeholders, openness and public accountability. In pursuit
profits, major firms ignore rules on auditor independence and market
tax avoidance schemes, shifting the tax burden from companies to
engaged in the downhill race for auditor liability. The state
monopoly of external auditing was given to accountancy firms on the
of ‘joint and several’ liability, creating incentives for partners
to police each other and accept consequences of poor work. Steadily,
been diluted. Now firms can limit their liability by trading as limited
liability companies or as Limited Liability Partnerships (LLPs). They
don’t owe a ‘duty of care’ to any individual affected by
audit failures. Accountancy firm partners share the profits, but don’t
have to suffer the consequences of negligence by their firm or fellow
Not content with
financing political parties to get their way, accountancy firms have
entire governments to advance their interests. Price Waterhouse (now
PricewaterhouseCoopers) and Ernst & Young hired the legislature of Jersey
to enact a LLP Bill, which they themselves had drafted. They awarded
protection from lawsuits, with little public accountability. They
same from the UK
government with the threat that if it did not oblige they would cause
and social turmoil. The UK
government gave way. Now they are threatening to cause chaos in the
insurance industries unless they get even more liability concessions.
firms are demanding a ‘cap’ on their liabilities and ‘full
proportional liability’, both already ruled out by the Law Commission.
Lax auditor liability laws dilute incentives for delivering good audits
played a major role in recent US
accounting scandals that have resulted in loss of investments, jobs,
homes and savings. Neither the US nor the EU is willing to give any
liability concessions to major auditing firms, but the government is
oblige without any quid pro quo.
by the Big Four accountancy firms would make it impossible for injured
stakeholders to secure appropriate redress from negligent auditors.
remove incentives for delivering good audits; encourage reckless
and even more audit failures and scandals. Anything given to
would be demanded by producers of other goods and services. The only
losers in the race-to-the-bottom are ordinary people.
The monograph urges
government to clip the wings of the Big Four accountancy firms by
their role in tax avoidance and flight of capital, appointment of
regulators, banning the sale of non-auditing services to audit clients,
breaking-up the Big Four firms and inviting news players to enter the
market. People are urged to generate pressures for change by boycotting
services of major accountancy firms engaged in the race-to-the-bottom.