Big Four giants Deloitte, PwC, EY and KPMG face extinction if they fail to learn the lessons from the failure of contracting giant Carillion, the head of Britain's leading accountancy institution warned this morning.
Carillion's mid-January collapse is a "watershed moment" for accountants both big and small, Institute of Chartered Accountants in England & Wales (ICAEW) chief executive Michael Izza said.
The comments come as MPs released a damning report into the failure of one of Britain's biggest contractors.
Carillion had a "rotten corporate culture" as its directors drove the firm over a cliff, a joint review by two influential parliamentary committees concluded.
City A.M. reveals all last December: Behind the scenes of Carillion's annus horribilis
Regulators were accused of taking too much of a "passive" approach when dealing with Carillion. The government, which continued to hand the firm contracts worth billions of pounds of contracts after a near £1bn accounting black hole was revealed, "nurtured" an environment which put Carillion on a doomed pathway.
Big Four accountancy firms "waved through" Carillion sign-offs, MPs claimed. Turnaround experts from EY were paid £10.8m and Deloitte, Carillion's internal auditor – whose role was to work with management to establish accounting checks and balances – received £10m.
KPMG signed off numerous sets of Carillion's annual accounts, while PwC prospered by picking up the lucrative mandate to assist the government's Official Receiver in winding down the firm's operations.
ICAEW chief Izza told BBC's Today programme the parliamentary report provided an opportunity to "think again about what we do to fix this".
It's a watershed moment. If we don't fix this I don't think we'll have a profession in 20 years time.
Audit firms need to tighten practices and use technology to "do things in a very different way", he added.
Largest ever investigated
Meanwhile, Britain's top accounting regulator, the Financial Reporting Council (FRC), today also provided an update on a probe into the actions of two of Carillion's finance directors and KPMG.
The FRC said it had made "good progress" in its investigation, which has seen officials wade through "tens of thousands of documents and emails in order to establish how and why audit and accounting decisions were reached".
The Carillion case is one of the largest the FRC has investigated. The FRC will not cut corners to conclude its investigations as that may compromise the integrity of any enforcement action.
Earlier today, KPMG insisted it had conducted Carillion's audits "appropriately". EY and Deloitte said they were "disappointed" at the MPs findings. PwC boss Kevin Ellis said the firm's priority had been "to keep public services running safely across the country".