Big accounting firms should increase pay for junior auditors if they want to make the sector more attractive to young recruits, according to the chair of the profession’s UK regulator.
Senior partners at the Big Four — Deloitte, EY, KPMG and PwC — have claimed that criticism from politicians and regulators, including high-profile fines for poor work, is making it more difficult to recruit and retain auditors.
But Sir Jan du Plessis, chair of the Financial Reporting Council, hit back, denying that the watchdog’s tough approach had made the profession unappealing.
Asked whether increasing pay was a solution to attracting people to work as auditors, du Plessis told the Financial Times: “Blunt answer: yes . . . There has been a significant increase in profitability at all the audit firms. They have the resources available to increase the pay levels of more junior people that they want to attract into their firms and it’s up to them whether they want to do so.”
Average partner pay at the Big Four has soared in recent years, passing £1mn a year at two of the firms. But with the exception of big increases last year as inflation soared, pay rises for junior auditors have been small over the past decade, and have failed to keep pace with salary growth in law and consulting.
PwC raised average pay for its London-based audit graduates to £32,000 last year, roughly half the salary of the City’s best-paid legal trainees.
Du Plessis, former chair of BT and Rio Tinto, said the difficulty auditors faced recruiting the right people was no different to that in many other sectors. Accounting bosses fear that staff shortages will be exacerbated by increasing demand from companies for external validation of their climate disclosures in addition to traditional financial statements.
Du Plessis said the FRC’s toughened approach had improved the quality of audits, adding: “If you’re a young person today looking to join a profession, I’d have thought you’d want to join a profession that sets very high standards.”
He also defended the FRC’s approach of naming and shaming audit partners when their work is under investigation, despite concerns among accounting executives that senior auditors are quitting the profession for fear of having their reputation tarnished before the end of their careers.
Du Plessis said that being named publicly was “tough” and that he had sympathy. But he added: “If we want to maintain standards in public life, individuals who want to have big jobs like that have to accept that from time to time the ball is going to bounce wrongly for them.”
However, he said that the FRC was likely to avoid naming junior auditors accused of misconduct in future “to the extent we can”.
The watchdog sparked a backlash last year when it publicly named a junior former KPMG auditor and sought a £50,000 fine against him at an industry tribunal at which he and his bosses were accused of deliberately misleading inspectors. The tribunal decided against fining the junior employee after clearing him of dishonesty and finding him guilty of a lesser offence of lacking integrity.
“We discussed that decision [to name the more junior staff] at great length at the time and there was quite a lot of discomfort in the organisation and sympathy for the individuals involved,” said du Plessis, adding that naming defendants who had already left the sector would have less impact on their careers.
The FRC has expanded rapidly in recent years in anticipation of being given more powers and renamed the Audit, Reporting and Governance Authority.
Du Plessis said he had “no idea” whether long-awaited legislation to create Arga would be passed before the next election but added that he was “optimistic” the current government or its successor would find time to do so “fairly soon”.
In the meantime, the FRC has been carrying out reforms that do not require legislation and is consulting on updates to the corporate governance code for large UK-listed companies, which will place more responsibility on directors for the accuracy of companies’ accounts.
“We cannot just place all the onus on the audit firms,” du Plessis said. “We should be more prepared to hold to account the people who prepare the reports rather than just the auditors.”
He said that auditors’ work had fallen below the required standard in previous scandals, but added that “politicians, journalists and others just found it really easy to put all the blame on the Big Four because they make for easy targets”.
The government’s plan for the FRC to create a Birmingham office and to move at least half of the regulator’s staff there in the coming years was “not in the first instance our preference”, du Plessis said, because the watchdog’s recruitment base and the companies and accounting firms it regulates were mostly based in London.
He added that he respected that the move was part of the government’s levelling up agenda and was confident the watchdog would make the move at a “sensible” pace without needing to make redundancies.
Sourced from Financial Times