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Australia’s four biggest banks – ANZ Bank, Commonwealth Bank, NAB and Westpac – have spent over $1.1 billion in the past decade on fees to hire the services of Big Four giants EY, KPMG and PwC.
Most of the billions in fees were paid for audit services, as EY, KPMG and PwC have long been the preferred trusted auditors of banks. EY has been the independent auditor of National Australia Bank for 13 years, KPMG is the auditor of ANZ and PwC serves two of Australia’s big four banking institutions; Commonwealth Bank and Westpac.
Over a ten-year period (2008-2018), a total of approximately $770 million in audit fees went into the pockets of Big Four audit partners, with PwC taking more than half the share. The revelation comes as the audit divisions of the Big Four face increasing pressure in light of recent criticism from politicians and regulators in Australia and internationally over the quality of their work.
In the UK, the Big Four accountancy firms failed for the second year in a row to meet the quality standards set by the Financial Reporting Council, the independent regulator in the UK and Ireland responsible for regulating auditors, accountants and actuaries. However, Australia’s last in-depth review of the auditing profession took place eight years ago, re-opening the debate about the need for a new review.
Conflict of interest?
Spending figures for the big four banks show that EY, in addition to providing audit workKPMG and PwC they also perform non-audit activities, including tax and management consulting services. This triggered one of the oldest debates in the Big Four profession: how independent can auditors be when they have to review the work of consultants from the same firm?
Traces of potential conflicts of interest are highest at the Commonwealth Bank, where about one-fifth of the $336 million ten-year bill was paid for consulting services. However, a spokesman for the bank said it tested its auditor’s independence every year, saying: “We have strict policies and procedures in place that govern the independence and work of our auditors, and these are regularly reviewed by the Board of Directors and the Audit Committee. .”
Similarly, both ANZ Bank and Westpac said their independent audit policies go beyond the requirements set by the Australian regulator. ANZ has effectively limited its consultancy spend to a maximum of 5% of audit invoices per year. Spending data confirms this – between 2008 and 2018, 4% of all fees went to consultants.
Shaun Dooley, group director of risk at National Australia Bank, pointed out that there were also limits to the non-audit work EY was able to provide to the bank.
Meanwhile, the country’s biggest auditors and consultants have defended their dual roles, saying they have extensive risk and control processes in place to prevent conflicts of interest.
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