What’s the biggest problem with the Big Four accountants Deloitte, EY, KPMG and PwC? Most critics would say it is that they are too cosy a club. But it is arguable that their real failing is a lack of club rules leading to a wholly inconsistent notion of club ethics. Nowhere is this more evident than in Deloitte’s resignation as Ferrexpo’s auditor and KPMG’s selection as Patisserie Valerie’s administrator. It is a tale of two accountants: one, possibly, with the best of motivations; another, seemingly, with the worst.
On Monday Deloitte’s reasons for resigning as auditor to Ukrainian iron ore miner Ferrexpo were published. Last week the accountancy firm issued a qualified opinion on the company’s results, saying it could not be certain whether Kostyantin Zhevago, Ferrexpo’s chief executive and majority owner, was unconnected to a charity the company funded, and whether any of the $35m donated since 2017 had been misappropriated — because an independent review was ongoing. But in spite of this incomplete process, and “indications that some funds could have been misappropriated”, Ferrexpo’s board published a “unanimous view” that the CEO did not have inappropriate influence or control over the charity. Deloitte duly resigned and has now explained that it did so because of “the company’s response to the situation” — including delaying until February a review Deloitte had called for in October.
Having been publicly contradicted by a prejudging client, Deloitte appeared to decide it did not need its client’s money, or prejudice, any more.
On the same day, though, KPMG was called “shameless” for taking money as administrator to Patisserie Valerie in the face of a clear conflict of interest. Last month KPMG said it would not be “appropriate” for it to pursue legal claims against Pat Val auditor Grant Thornton — possibly the only way shareholders and creditors can get any money back — because KPMG employs Grant Thornton as its own auditor. However, KPMG sought and won the administrator role in January, months after it was known there might be a claim against Grant Thornton. And in spite of Pat Val directors and KPMG partners being aware of this — it was reported in many newspapers — KPMG was given the job and paid fees out of shareholders’ and creditors’ cash. A second fee-charging administrator must now be appointed to pursue Grant Thornton.
Having been previously shamed over conflicts of interest — notably advising the Grenfell Tower inquiry despite past links to the council and contractors under scrutiny — KPMG appeared to decide it wanted the money more.
Rules and principles are never black and white, of course. Deloitte’s resignation may have been more a delayed attempt to protect itself from further embarrassment. It also remains part of a cosy club — Ferrexpo’s now-resigned audit committee chair was a former Deloitte partner. KPMG’s appointment came after it told Pat Val’s directors a second administrator would be needed to pursue Grant Thornton, but the directors appointed KPMG anyway — and one of them was Luke Johnson, who is also an out-of-pocket shareholder and creditor. Also, when KPMG was appointed, it was not clear Grant Thornton had done anything wrong — and it still isn’t. Even so, with the UK’s competition watchdog calling for a break up of the Big Four, one might think that on matters of principle the Four would act as One.
Confident of Provident
Confidence does not always come across well. It can provoke dislike, even suspicion. If an inquiry about someone’s character is met with “he’s very confident, isn’t he?”, it is not a compliment — in this country, at least. So, how might Provident Financial shareholders react to John van Kuffeler’s “strong confidence” that his Non-Standard Finance group will win its hostile bid for the doorstep lender? Or his pledge to “restore the confidence” of regulators? Or the fact he is “highly confident” — unlike the regulators — in the practice of guarantor lending?
Some at the Provvy noted Mr van Kuffeler was loudly asserting his self-belief just as NSF was quietly setting out shareholder meeting resolutions to fix a problem of unlawful dividends. And they added that his self-assurance extended to not wanting to wait for a Competition and Markets Authority decision before imposing a deadline for accepting the deal.
NSF backers suggested three reasons for such confidence. Some 51.3 per cent of Provvy investors have already accepted; financial regulators appear satisfied; and even if the CMA says NSF’s Loans At Home unit must be demerged with additional capital or ringfenced and sold, the extra cost should be covered by a higher valuation. Shouldn’t it? For Provvy shareholders, that last argument may be too great a leap of faith. Confidence in CMA rulings can be misplaced — just ask Sainsbury and Asda.
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