It’s time to reform the Big Four accounting firms

It has been exactly 20 years since the Enron scandal upended the reputation of global accountancy firms, leading to the downfall of both the company – one of the largest in US history up to that point – and Arthur Andersen, one of the ‘Big Eight’ accounting firms.

Enron’s collapse provoked an avalanche of regulation, ostensibly to reduce the chances of similar accounting fraud repeating itself. In the United States this effort was spearheaded by the 2002 Sarbanes–Oxley Act, while the European Union’s 2006 Auditing Directive followed scandals like the 2003 collapse of Italian dairy giant Parmalat.

In reality, these supposedly stringent regulations were crafted under considerable influence from the big accountancy firms themselves, which have since consolidated into the ‘Big Four’.

As the Belgian chartered accountant Peter Vandewalle wrote in 2010: ‘In fact, the working methods of the four big accountancy firms (Deloitte, KPMG, Ernst & Young and PriceWaterhouseCoopers) have been largely enshrined into legislation, despite the fact their approach failed when it came to Enron [and] Parmalat.