At least it is according to Neil Sedaka - but also, it seems, the 'Big 4' audit firms in the UK agree.
I have some sympathy with them - the initial reaction from the UK House of Commons’ business committee is that following the recent and public failure of a number of high profile UK businesses, the audit profession needs reform. The potential for conflicts of interest with often multiple additional services typically being provided by the same firm as the audit has again been flagged as an issue. This is not the first time this has been raised as a problem.
The stick being waved this time is the proposed break-up of the accounting firms by forcing the legal separation of the audit practice from the rest of the business. This, it is assumed, is to increase the independence, build a more appropriate audit culture, generate higher quality audits and give clarity on audit pricing.
Whilst this sounds a pragmatic yet somewhat brutal response, the auditors counter that breaking up the audit business will not necessarily achieve these aims. The benefit of having multiple services as part of the wider firm is that they can bring a wider and more focused experience to the audit that can not be obtained simply by auditing other companies. Large companies can be very complex businesses and as such, the audit by necessity will be a complex project and is likely to need specialists to help - at least with aspects. Valuation, for example as my area of expertise, or taxation as another, are constantly evolving and therefore not having access to the latest thinking or experience from an audit perspective is likely to lead to a poorer quality outcome.
So what does this mean in practice? It is unclear how the major firms will react if these requirements were imposed on them. Almost certainly, the cost of audits will increase; there will be specialisms required that will either need to be outsourced, or the relevant personnel in-sourced and this is unlikely to be managed as efficiently as currently.
Will the new audit firms be able to offer consulting or non-audit services? Nothing has been suggested this is restricted. If so - what difference will there be to the current modus operandi where audit firms can do this now?
Suddenly the break-up seems less of a good idea if standards and efficiencies are to be maintained. Possibly, the same issues will crop up again unless further regulation is implemented, restricting audit firm activities. Neil Sedaka was right all along.
Breaking up the Big Four: EY, Deloitte, KPMG and PwC protest at UK reform