What we teach | The Lesson: “Does the firm have enough staff available before accepting a client? Ensure adequate staffing and support for client projects.” 

Reality Check: BDO and Mazars

As previously discussed here, high-profile audit failures have questioned the realism of TRIMROT’s first factor of “technical competence – checklist.” Examples included KPMG’s handling of Carillion and Grant Thornton’s relation to Patisserie Valerie. Hefty fines levied upon these firms underline the tension between rigorous auditing and other priorities. As we journey on now with TRIMROT, we face a sad truth.

Principles alone do not confer integrity.

The true test of our profession lies in the faithful practice of those ideals.

Let’s talk about the second factor in the TRIMROT i.e. resources.

A recent review from the Financial Reporting Council (FRC) uncovered some concerning findings about resource allocation in the audit industry. The FRC’s 2023 assessment found a decline in BDO’s audit quality rating. It dropped from 69% to 38% year on year. Forvis Mazars’ rating also fell, decreasing from 56% to 44%.

To put it another way, BDO’s audits missed the mark in 62% of cases, with Mazars coming up short in 56%—figures that suggest a deeper issue in how resources are stretched in these firms.

Industry veterans always advise that the firm should not grow its client base without an appropriate increase in resources. BDO and Mazars just have rapidly added clients without commensurately expanding their teams to manage the load. Since then, BDO has announced that they will add 350 more auditors in order to close the quality gap.

How soon these new hires will make a difference remains to be seen.

This highlights the tricky balance between growth and maintaining high standards. BDO and Mazars aren’t alone in feeling the strain.

Deloitte’s experience with Autonomy reveals similar risks. Their focus on growth saw audit resources spread too thin, with some material misstatements slipping through. When Hewlett Packard took over Autonomy, the discrepancies, as found by investigators, contributed to an $8.8 billion write down – another example of the risks associated with under-resourced audits. 

Another example is the oversight of Carillion by KPMG between 2014 and 2016. Missed red flags in Carillion’s financials led to the company’s collapse in 2018. This had far-reaching economic impacts. 

The FRC later fined KPMG £18.6 million, blaming part of the trouble on a lack of resources.

Adding to these challenges, auditors face growing regulatory demands.

Standards are higher. Fraud detection is under more scrutiny than ever. Indeed, the IFAC’s 2022 survey showed that more than half of audit firms reported difficulty in finding appropriately qualified professionals.

These recruiting challenges, combined with lingering post-pandemic effects, underscore the need for sustainable, long-term hiring and training strategies. Expanding services without boosting resources is a risky move that could jeopardize both the audit profession and public trust.

Resources are not just numbers on a budget—they’re the people, time, and expertise essential to uphold the credibility of audits.

For firms like BDO, Mazars, and others in growth mode, the challenge is to expand responsibly. It is crucial to ensure that quality and reliability stay top priorities.

That’s all for now, about the second factor of TRIMROT. When profit outweighs objectivity, quality declines. This painful realism leads us to our next key factor i.e. ‘independence’