Steven Cox, BA (Hons) FCCA Chief Evangelist, IRIS Accountancy Solutions
The audit sector is set for a massive shake up, I feel, as the Competition & Markets Authority (CMA) begins a major new probe, with the spotlight clearly fixed on the Big Four.
This review signals the beginning of the levelling of the playing field between the biggest of the of accountancy firms and the rest of the industry. They are under more scrutiny than ever, with the CMA writing to Government about the problems it is investigating.
The fact is, thanks to major technological advances, the time is now perfect to loosen the grip and let other firms seize the opportunity to thrive in the auditing marketplace.
Specifically, Artificial Intelligence (AI) enables professionals to gain far greater insight without replacing any human intelligence. In fact, these tools enable accountants to apply critical thinking (which AI cannot) to provide detailed insights and add value to their client relationships.
While the Big Four— PwC, EY, KPMG and Deloitte have poured development funds into the technology, it has been difficult for accountancy practices to invest in AI – until now.
Companies such as IRIS are bringing AI to the rest of the accountancy market, so they are now ready and available to take advantage. These tools can level the playing field for accountants, whose frustration has been swelling over the significant advantage they feel the Big Four have over everyone else.
The final outcome of the CMA probe will be fascinating, especially because investigators have left open all possible actions if it ultimately concludes the market is failing.
The CMA says its first focus is on choice and switching – specifically that the largest UK companies “still turn almost exclusively” to one of the Big Four when selecting an auditor to review their books.
The review comes amid strong criticism of the sector from the Financial Reporting Council, which has just revealed that 27% of the audits it inspected needed “more than limited improvements”. Officials revealed a significant decline in audits achieving a good standard in the FRC annual report– just 73% compared to 81% in 2017. This was due to “an unacceptable deterioration in quality at one firm, KPMG”.
We shouldn’t underestimate the significance of the CMA investigation. It shows this powerful band of firms are not beyond reach and hopefully encourages more practices into auditing the larger FTSE100 companies.
AI is a great way for medium-sized firms to scale up their operations to tackle much larger audits, enabling a review of 100% of transactions rather than a select sample. It’s like having a digital in-built senior auditor and it has the potential to be a game-changer.
In essence, firms using the AI technology can compete and offer more comprehensive audits to larger companies whilst utilising fewer staff.
We’re confident that accountants who use AI will be the ones who achieve the most success in coming years. We hope that accountants across the UK have the confidence to take advantage of the evolving audit situation and it’ll be fascinating to see how the CMA probe develops in coming months.