PwC criticised for alleged conflicts of interest auditing Staffline

PwC has been accused of ignoring conflicts of interest at a listed audit client, at which two senior members of staff were former members of the Big Four firm. UK recruitment firm Staffline was forced to suspend trading in its shares after it admitted to investigating potential accounting irregularities.

Over the past five years, the Big Four’s share of FTSE 350 auditing expanded from 95% to 98%. Fears of both monopolisation and conflicting interests have grown throughout the last year, particularly as all of the Big Four were implicated in the collapse of Carillion. As a result, critics are increasingly comparing the Big Four to Arthur Anderson, which was heavily involved in the Enron accounting scandal which caused the US’ largest energy firm to go bust.

That incident led to the de facto dissolution of Arthur Andersen, which was then part of the ‘Big Five’, and saw the remaining four firms weigh up divesting from their consulting arms, amid an inquest to avoid a recurrence of the events. While the competition probe from the Competition & Markets Authority the Big Four faced last year ultimately opted not to break up the firms and force them to sell off their consulting or auditing wings in the UK, the debate regarding the quartet’s practices is set to rumble on for some time to come.

In particular, this dialogue will have been further fuelled by suggestions that that PwC’s relationship with Staffline – one of the UK’s largest recruitment firms – has allegedly been compromised. Staffline’s Finance Director, Mike Watts, and the firm’s Audit Committee Head, Ed Barker, both previously worked at PwC, while one of its previous Finance Directors, Phil Ledgard, was also a PwC alumnus.

While PwC maintains its role as the firm’s auditor is legal, the story has nonetheless caused a stir. This is especially the case because Staffline delayed the publishing of its annual results in January citing potential accounting irregularities, which involved “invoicing and payroll practices”. According to reports from the Financial Times, the Aim-listed company said that these issues could have a material impact on its profitability.

With accounting irregularities having seen a growing number of UK companies collapse in the last year, including the infamous £20 million “black-hole” which saw Patisserie Valerie fold at the start of 2019, this has caused alarm among industrial experts. According to Accounting Professor Prem Sikka – who has been commissioned by the Labour Party to lead a review of Britain’s audit market – PwC’s independence at Staffline was “clearly” compromised by these relationships, and added that the firm’s role as the company’s auditor was “inappropriate”.

Commenting on the criticism it had received, PwC said, “We have followed procedures and satisfied ourselves that we are independent. As auditor, PwC is independent. Our work is on-going on the current audit.”

Staffline meanwhile told the press that it was unable to provide any additional information to the statement it made on January 30 but “continues to work closely with its auditors PwC.”

Last year, the scrutiny which the Big Four faced for alleged conflicts of interest saw KPMG become the first of the professional services industry’s big beasts to stop undertaking non-audit work for FTSE-350 companies whose accounts it supervises. A briefing note circulated by Bill Michael, KPMG's UK Chairman, confirmed that the move was part of a proactive stance from KPMG to head off "even the perception of a possible conflict” by discontinuing the provision of non-audit services such as consulting work for the FTSE-350 companies in question.