‘Big Four’ audit firms never examined over illegal tax plans

Exclusive: Regulators fail to act as they are dominated by the companies they are supposed to police, say critics

Audit and accountancy firms who devise tax-avoidance schemes ruled unlawful have never faced official reprimand, The Independent can reveal.

None of the so-called “Big Four” firms – PricewaterhouseCoopers (PwC), KPMG, Deloitte & Touche and Ernst & Young – has ever faced regulatory investigation for such schemes. Court rulings condemning unlawful avoidance schemes are regularly overlooked by regulators.

Critics claim accountancy regulators such as the Financial Reporting Council (FRC) and the Institute of Chartered Accountants in England and Wales (ICAEW) cannot act because they are dominated by the very firms they are meant to police. They warn the UK is increasingly seen as an international “soft touch” for tax-avoidance abuses as government departments and regulators show little or no appetite to investigate these schemes.

Prem Sikka, Professor of Accountancy at Essex University, said: “Successive governments have failed to investigate the firms. Instead, the partners of major accountancy firms are given peerages, knighthoods, public accolades and government consultancies. The same firms have colonised regulatory bodies, fund political parties and provide jobs for former and potential ministers. This has brought them political insurance and their anti-social practices continue to inflict enormous social damage.”

The FRC, he says, is too close to the big four firms. 

“Its committees are dominated by personnel from the big four firms,” he argues. “The involvement of Big Four firms is routinely highlighted by court cases, parliamentary hearings, etc. So the FRC has had plenty of opportunities to take action on the tax-avoidance front. It will not be able to refer you to even one example. Even after court judgments it does not do anything.”

Former Labour MP Austin Mitchell, who made an official complaint in 2012 against Ernst & Young about its involvement in a tax scheme later ruled to be unlawful by a tax tribunal, is critical of accountancy regulators.

“It is time to scrap self-regulation of accountancy and audit and replace it with an independent regulator and an ombudsman. The FRC and the ICAEW are essentially regulation of the big four by the big four for the protection of the big four. Each time I’ve raised an issue with them they either invent a litany of excuses to avoid dealing with it or bury it quietly in the hope that it will go away,” he said.

The FRC said it assumed responsibility for auditors’ ethical standards in 2004 and subsequently banned them from promoting tax schemes to clients. The FRC committee which decides whether to investigate contains a majority of lay members and no practising accountants or auditors. Of 13 members four previously worked for Big Four firms. “We have not seen, been provided with or otherwise become aware of actual evidence that major firms have been promoting illegal tax-avoidance schemes,” a spokesman said.

The ICAEW denied failing to act against promoters of tax-avoidance schemes.

“We will always look at any scheme if it is ruled unlawful but it does not follow that if a tax case is lost disciplinary action will automatically follow,” a spokesman said.

He said the ICAEW could not comment on Mr Mitchell’s complaint as it was still “live” three years on. 

Critics claim it is a common tactic for regulators to announce investigations under pressure and then quietly drop them.