Auditors and CFOs – Healthy Relationships or Too Close?

Much has been written recently about the oligopoly of the big four auditing firms and the dominance they have in terms of major audit work. 241 of the FTSE 250 for instance use one of PWC, EY, Deloitte or KPMG.

This has come to the fore again in the context of dis-satisfaction about the quality of their work, with examples such as the failure to highlight the emerging problems at Carillion, or the auditing of BHS before Philip Greene sold the business.

One point identified by many observers is the link between audit business and the advisory and consulting work the firms carry out for those same clients. Does that provide a conflict of interest? Will partners in the audit firms worry about exposing something in the audit, if they believe that might negatively influence lucrative consulting work?

But the questions about conflict of interest go much deeper that that, and thanks to our friend and marketing procurement guru Tina Fegent for pointing out on Twitter an interesting article from Deloitte’s website. In it, Julie Brown, a CFO, talks about her relationship over the years with Deloitte.

I took part in Deloitte’s Next Generation CFO programme in 2012, when I was Interim CFO/VP Group Finance at AstraZeneca. …. So I turned to Deloitte again to attend a personalised one-day CFO Transition Lab. This was a great sounding board to help me to develop my 180-day plan …   I left AstraZeneca in 2013, and have since been Group CFO at Smith & Nephew and COO/CFO of luxury fashion designer Burberry. Deloitte helped me transition to both those roles and also supported me by developing my wider team, as I nominated my top performers for the Next Generation CFO programme. … At a personal level, my relationship with Deloitte, from the first interaction I had as VP Finance at AstraZeneca, has been so beneficial. The Deloitte team has always been there for me.”

On the one hand, it is good that firms are helping to develop the future management talent that will help us all to prosper and thrive. But the issues with this closeness – and you can’t get much closer than helping with a senior executive’s own career decisions, development and progression, is whether it takes away some of what should be objectivity in that relationship between CFO and auditor.

For instance, is an audit firm more or less likely to criticise a firm in which they have a close relationship with the CFO? Can Brown really be impartial and objective when the audit work goes out to tender – which it must now at least once every ten years?  If some consulting is required, is the CFO’s judgement on the objective process to select the best firm compromise by this “beneficial” relationship?

We’re not suggesting for a moment that Brown or Deloitte would ever do anything to act against the best interest of her employer. I’m sure she believes that she is totally impartial. But when you read this, as a procurement person, you might wonder whether there is something just a little worrying about the way the audit firms (and we’re sure they are not the only example) get close to the people who they are supposed to be independently auditing, and the people who have the power to generate millions in revenue for the firms.

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