EU Tries to Loosen the Big 4 grip

Anyone familiar with the accounting world knows that most of the power is concentrated in the Big Four accounting firms. I worked in Accounting Firm number 5, which sometimes acted like we were the little siblingĀ  trying to play with our older brothers’ and sisters’ friends (despite the Grant Thornton leadership saying we were happy with where we were).

The European Union has just approved rulings to slightly crack that powerful Big 4 grip. According to the latest report, the European Union has decided the close relationship between public companies and the Big 4 accounting firms was causing impediments to judgment when signing off on the company’s bill of health. Though, when I read the excerpt from the Reuters article, I had to laugh just a bit at the solution:

The 28-country bloc’s European Parliament approved a law on Thursday designed to stop any listed company from using the same accountancy firm for more than 20 years, a reform the United States has shied away from as a step too far.

Can’t use the same accounting firm for more than 20 years? That hardly seems like it’ll make much difference. By the time the 20 years are up, chances are not a single person doing the audit in year 1 will still be in the accounting firm.

What is most likely to happen from this ruling is that the audits of these listed (i.e. publicly traded) companies will take a round between the Big 4 accounting firms, which the article even indicates is what has happened in the UK based on similar rules. Ironically, even if it moves from EY to Deloitte, it could very well be run by many of the same accountants due to the high turnover rate and poaching that occurs between the Big Four accounting firms.

The bigger change, at least of that mentioned in the article, is that banks will no longer be allowed to require loan-seeking companies to have a Big 4 accounting firm audit the books. Grant Thornton is probably doing a dance right now. Looks like Mom and Dad are forcing your older sibling to allow you to play with them. Now you just have to convince all their friends that you really are cool.

We're all nerdy. GT is just the littlest nerd.

We’re all nerdy. GT is just the littlest nerd.

Practically speaking, this ruling will probably make little difference. But if it makes Grant Thornton, and, by extension, my resume, look better, I’m all for it.

UPDATE: And here’s Grant Thornton’s official backflip.

Photo by Pat Loika