Vultures circle as RSM admits internal accounting blunder

As it looks to win lucrative auditing work from disgruntled clients of the Big Four, mid-tier professional services firm RSM has been caught out regarding its own accounts. According to reports from UK paper The Times, this is the second mis-statement of the firm’s accounts since 2013, and rival firms are already weighing up picking up parts of the firm as a result.

The largest auditing and consulting firms of the UK have endured intense scrutiny since the collapse of outsourcing giant Carillion in early 2018. In the years since, talk of ‘breaking up’ the Big Four has been steadily reaching a crescendo, even featuring as a talking point in the 2019 General Election campaign.

Allegations of conflicting interests and suspicion regarding firms which both monitor the financial health of firms and provide them with business advice has spread well beyond the likes of PwC, Deloitte, EY or KPMG, though. The chasing pack of mid-tier professional services firms have often struggled to capitalise on the perceived dents to the reputation of the Big Four, due to a mounting list of their own blunders.

Grant Thornton, the UK’s sixth-largest professional services firm, endured a torrid 2019 after long-term audit client Patisserie Valerie went bust, citing a multi-million pound black hole in its accounts. The firm was also been pilloried for its continued relationship with divisive retail giant Sports Direct, which it finally ended after critics suggested it conflicted with British competition law.

Now, at a time when it might have hoped to make ground on the likes of the Big Four and Grant Thornton, Britain’s seventh largest accounting and advisory company has had to commence 2020 with a management purge, following an accounting gaff of its own. According to The Times, RSM quietly removed its Chief Executive, Finance Director and Chief Operating Officer from their roles just before Christmas, in the wake of a reported internal accounting blunder.

One industry expert speaking to The Times labelled the incident “pretty embarrassing”, while others suggested that it made RSM susceptible to takeover approaches. While the firm has since called this “completely untrue,” at least one auditor is reported by the British press to have already assessed whether it could scavenge parts of RSM’s UK operations.

This apparent hearsay has been lent credence by the fact this is actually the second major time that RSM’s own internal accounting mechanisms have failed, and the nature of that first instance has led some experts to raise questions about RSM’s future stability. In 2013, the UK wing of RSM’s global network – then called RSM Tenon – collapsed having mis-stated its accounts. The firm was sold in a pre-pack administration to British firm Baker Tilly, which then rebranded as RSM in 2015.