1 in 5 companies audited by 'old firm' employee

Almost one in five FTSE 100 companies are audited by the “old firm” of a board director, lending weight to accusations that a cosy relationship exists between some businesses and their accountants.

Links between large companies and their auditors have been under scrutiny since the Enron scandal in the United States when it was revealed that a number of senior figures in the disgraced company’s finance department were former staff of its auditor, Andersen.

According to a survey from trade magazine Accountancy, the Big Four accounting firms have a stranglehold on the FTSE 100 companies in terms of chartered accountant alumni.

Around 90% of chartered accountant finance directors have previously worked for one of the Big Four firms – PricewaterhouseCoopers, Deloitte & Touche, Ernst & Young or KPMG.

Additionally, 24% of finance directors who are chartered accountants have their old firm as company auditor.

Chris Quick, editor of Accountancy, said: “We were surprised at how many FTSE 100 companies use the old firms of their finance director, or another senior director, as their auditor.

“In part this can be explained by the stranglehold the Big Four accountancy firms have over the audit market and the fact that it is now de rigeur for the FTSE 100 finance directors to have a Big Four background.

“But there is no getting away from the fact that these potential conflicts of interest exist in around one in five FTSE 100 companies.”

The Institute of Chartered Accountants responded to concerns about corporate governance issues last year by introducing a two-year cooling off period for accountants taking a senior position with a client.

It is feared auditors could look more favourably on a client if they hope subsequently to get a job with that company.

Another concern is finance directors who find themselves being audited by former junior colleagues at their old firm who might easily be intimidated.