The heads of the UK’s six largest accounting firms staged a virtual meeting on Friday to discuss the risk to their reputations of accepting government funds for furloughing potentially thousands of employees, according to three people with knowledge of the discussion.
Leaders from the Big Four firms PwC, Deloitte, KPMG, and EY and their counterparts at mid-tier firms BDO and Grant Thornton debated whether it would be “appropriate” for them to take advantage of a state-backed scheme during the coronavirus crisis, where employees are furloughed rather than made redundant and the UK government pays up to 80 per cent of their wages. Their hesitancy follows several years of corporate failures and accounting scandals that have bruised their brands.
“The firms are terrified of suffering yet more reputation damage during this crisis,” said one of the people. A second person said the call became a “moral debate”, adding that “everyone’s a bit battered and bruised and we’re all a bit cautious”.
A third person with knowledge of the discussion likened the situation to the furore around some top English football clubs, which have been criticised for paying players extremely high wages while relying on government support to furlough lower-paid cooks, cleaners and parking attendants.
While none of the firms has yet adopted the government furlough scheme, during the call at least two of the Big Four admitted to applying for the Covid Corporate Financing Facility (CCFF) — a loan from the Treasury and the Bank of England, according to two people with knowledge of the matter.
The scheme provides bridging loans to companies to pay wages and suppliers as they suffer severe disruption to cash flows amid the pandemic. It has been used by companies such as airline easyJet. According to the CCFF website, the facility “will provide funding to businesses by purchasing commercial paper of up to one-year maturity issued by firms making a material contribution to the UK economy”.
The accountants’ meeting was co-ordinated by the Institute of Chartered Accountants in England and Wales, the trade body for the profession. The ICAEW appointed a lawyer to monitor the meeting and protect against possible breaches of competition law. However, the discussions could further rouse the attention of competition regulators, who have recommended legislation to improve choice in the market and branded the Big Four an “oligopoly”.
PwC said it would reduce monthly profit payments to its 900 partners by up to 20 per cent from April. In a message to its 21,000-person workforce this weekend, PwC chairman Kevin Ellis said promotions, pay rises and bonuses would also be frozen.
EY, KPMG and Deloitte are also considering measures to increase capital reserves, including reducing profit payments to partners. Deloitte has offered an unpaid “childcare and dependants” sabbatical to its 16,000 staff. BDO is considering cutting partners’ monthly dividends by up to 35 per cent, according to a person close to the firm.
Meanwhile, Grant Thornton has agreed a 40 per cent reduction in pay and hours with 150 of its 4,500 employees. Chief executive David Dunckley said its partners had agreed to cut their profit drawings “when we need to”.
“Many of the firms are furloughing staff in all but name,” said one person privy to the group call, citing reduced hours and sabbaticals being offered to individuals across the profession. “The view is we can’t possibly take government money unless partners take some pain.”
Partners at the Big Four firms earned an average of £720,000 last year. Their reputations have been hit by a number of corporate collapses in recent years, such as at retailer BHS, construction group Carillion and Thomas Cook travel agency. Auditors failed to warn about the companies’ deteriorating financial health, leaving shareholders and staff out of pocket following their demise.
According to one of the executives with knowledge of the call, the head of one Big Four firm said they should seek to rehabilitate their image during the Covid-19 pandemic. “The gist of the call was that the accounting firms had a poor 2008 crisis, and we need to have a better one in 2020,” the executive said.
The resilience of the Big Four has also come under scrutiny in recent months amid calls to force them to separate their audit practices from their lucrative consulting divisions. The UK government questioned the firms on their ability to withstand a financial shock in November, asking about their capital strength and insurance provisions.
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