With a call being made to blacklist some of the biggest auditing firms, Nicola Sharp of financial crime specialists Rahman Ravelli considers the argument for such action.

An advisory service is calling on company shareholders to blacklist a number of large audit firms because they are not doing enough to identify and tackle corporate fraud.

Pensions and Investment Research Consultants (PIRC), which is a corporate governance and shareholder advisory consultancy, has said that investors should vote against the reappointment of PwC, KPMG, Ernst and Young and Grant Thornton at any British company where they are the auditor. 

PIRC has taken its stance because it believes the auditors have not given strong enough undertakings about improving procedures to detect fraud. It has not called for investors to vote against Deloitte, BDO and Mazars as it believes they have given commitments to address the situation.

PIRC wants to force accounting firms and the authorities to ensure the professional standards of auditors regarding corporate fraud are in line with what the public and the law expect. The UK government has recently published plans to make significant changes to the audit industry in order to boost confidence in the integrity of companies’ accounts. One proposal from the Department for Business, Energy and Industrial Strategy is to place greater reporting obligations on auditors and company directors in order to prevent fraud.

While auditors are currently expected to adhere to the principle that certified information is “useful for users”, PIRC believes this does not ensure that they meet all their obligations to the companies they audit.

PIRC’s call for blacklisting comes as a result of the high-profile collapse of businesses such as Carillion, Patisserie Valerie and Wirecard, where allegations of corporate fraud have been raised. There are concerns that the large audit firms are not doing enough to prevent fraud. 

If, however, the large audit firms are to be blacklisted, the mid-tier firms who will be filling the void will be expected to put measures into place to ensure that they can combat corporate fraud and avoid similar accusations of failing to meet their obligations.