Data has revealed Australia’s big four accounting firms have racked up billions of dollars in auditing fees in the private sector despite the quality of auditing declining. It's part of a special 7-30 investigation from Adele Ferguson who looks into the infiltration of the big four companies in the private sector.
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TVTranscript
00:00 It's as much as it is in the government.
00:04 You know, we've seen that it's infested government departments.
00:07 It's exactly the same in corporate Australia.
00:09 They are on the boards of the big companies.
00:13 They are doing billions of dollars of auditing work and consulting work.
00:18 And when it comes to the top 300 listed companies, 97% of the external audit work is done by
00:25 the big four.
00:27 Why is auditing so important for the entire financial system?
00:31 It's massively important because everybody, you know, the banks, the superannuation sector,
00:38 shareholders, they all look to financial reporting of companies that they're fair and honest.
00:46 So if the quality isn't there, then, you know, they'll get a shock.
00:50 There'll be a shock in the system and companies can collapse or they'll be reporting accounting
00:55 irregularities that can cause the share price to tank.
00:59 So let's look at one example.
01:00 Late last year, it emerged the construction firm Downer EDI had been inflating its profits
01:06 by 40% for the last four years, but the auditor KPMG did not pick that up.
01:12 What happened there?
01:13 So what happened was they put out an announcement to the Stock Exchange that they had overinflated
01:19 their profit over a number of years by $40 million.
01:23 And the share price immediately fell 22%.
01:27 You know, in other cases around the country at the moment, there are at least 10 court
01:31 cases involving companies that have either collapsed or have reported these incredible
01:37 accounting irregularities.
01:39 And the law firms are going after the big four.
01:42 Yes, we know the spotlight has been on the big four for the last six months or so.
01:47 What explanations are these companies giving for this work that they're doing?
01:51 So what they're saying is that they have Chinese walls, because one of the problems is the
01:56 dual role as auditors and consultants.
02:00 Is that a conflict?
02:01 You know, is it poor quality auditing or is it that they're turning a blind eye to what
02:07 their paying clients are doing with their accounts?
02:10 So that's why Professor Alan Fels tonight on 7.30 is saying that we need to split them.
02:16 And I guess one of the big questions has been where is the regulator ASIC in all of this?
02:20 Well, this is another problem.
02:22 They have been doing these terrific inspection reports into the industry and into the individual
02:29 big four firms, looking at the quality of auditing, taking samples of their audit work
02:34 and releasing reports.
02:36 They've now decided that they won't be doing that.
02:41 They've restructured the corporate regulator and they've shrunk the team and they've got
02:46 rid of their chief accountant.
02:47 [BLANK_AUDIO]