‘Something has to happen’: How the Big Four crisis provides an opportunity
Accounting's Big Four firms are under siege. The dominance of Britain’s bean-counting giants has been called into question in the wake of a number of corporate failures – most recently that of Carillion.
MPs and regulators are clamouring for a shake-up in the balance of power; and the former global chief of
Deloitte’s $3.4bn (£2.4bn) financial advisory arm can smell a serious opportunity.
“The public stakeholders just feel something has to change,” says Tim Mahapatra, the latest in a string of Big Four partners to jump ship to advisory firm Alvarez & Marsal (A&M).
Almost a year after A&M snared former KPMG heavy-hitter Richard Fleming, it has enticed Mahapatra as head of strategy. Like Fleming, he is excited at the prospect of being freed from the shackles of 30 years of audit conflicts.
“I was leading a business with huge amounts of growth [and] it was highly profitable. But it was probably not really being given the attention or the investment to allow us to capitalise on opportunities.
“Big Four firms are a collection of national partnerships… But financial advisory is inherently a global business. It is quite hard when you have to get multiple national leaderships to buy into something.”
“I think A&M has the ability to be so much quicker than the Big Four.”
Read more: Carillion finance chiefs investigated by top accounting regulator
Feasting
The parliamentary inquiry into the failure of what was Britain’s second-biggest contractor has attacked the likes of Deloitte, PwC, KPMG and EY; blasting accountants for “feasting” on Carillion’s carcass. MPs believe there is a significant conflict of interest between auditor’s sign-offs and lucrative advisory engagements.
And last weekend, Britain’s top accounting regulator, the Financial Reporting Council (FRC), called for an inquiry into whether the Big Four should be split up.
FRC chief executive Stephen Haddrill said it was worth considering a shake-up of the sector that would leave “audit-only” firms.
Haddrill warned of “a crisis of confidence” in Britain’s audit sector within some circles.
Does this auditor spotlight play into Mahapatra and A&M’s hands?
“Undoubtedly,” he says.
“Whether it’s Carillion, Steinhoff, all these sorts of things; the opinion around the Big Four means something has to happen.
“Ultimately what you saw with the FRC over the weekend was the demand that in the UK there is the separation in audit from non-audit; over time that agenda will come to pass.”
However, Mahapatra says: “It won’t happen in five minutes.”
This presents an opportunity for “pure play” firms like A&M, he says.
It gives clients sufficient time to unhitch themselves from Big Four relationships and look for opportunities elsewhere.
“It is very difficult for clients to plan and that definitely plays into the hands of A&M.”
Read more: Attacking the Big Four won’t fix the audit market
Pricking interest
Similar to other boutique advisers, A&M is picking up growing numbers of disenfranchised former Big Four staff across all levels.
And only a matter of days into his new role, the level of interest to work for A&M has surprised Mahapatra.
“I am already seeing a lot of people are coming to me,” he says. “[A&M] is pricking their interest.”
The business is growing at pace. Before Mahapatra started, A&M’s global transaction services had grown to be the largest outside of the Big Four.
And with a flurry of interested new candidates, there seems little sign such growth will tail off any time soon.
“Big Four partners in certain areas of the business are finding it harder to do business,” he says.
“All the very talented partners… are starting to experience parts of the business that are not open to them.”
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