Issue No. 1 - Spring 2026

This briefing paper addresses selected issues shaping the environment in which the global accounting firms deliver audits for the world’s large companies. 

The assurance function has been vital to commerce since the emergence of trade. But the audit model invented in the Victorian era is today exposed to an expanding set of external pressures – litigation, regulation, and law enforcement – and to persistent criticism following eruptions of financial malfeasance, under the familiar cry, “Where were the auditors?”

Senior leaders in the large firms need to be well informed on the fast-evolving issues. The perspectives here draw upon my decades of hands-on experience – including both advice and defense in response to the external threats, and counsel on the firms’ internal concerns over organization, structure, operations and practice quality.    

Future papers will be forthcoming periodically, guided by the timing and significance of developments. 

This inaugural edition is available at no cost. Subscription information for future issues and the archive appears below.    

Audit Regulators: Retreat will have Consequences

It is apparent that the capital markets are again at that point in the cycle where the attitude of the major audit regulators toward the accounting profession is at best one of indifference. 

In the US, the actions and messaging of SEC leadership read as reflective of White House priorities: focus is on unleashing and enabling the advocates of crypto, while enforcement activities have plummeted. As posted on LinkedIn by John Reed Stark, former Chief of the SEC’s office of internet enforcement, on January 11, 2026, “the SEC isn’t just pulling back – it’s vanishing – quietly adopting a new ethos of absence, silence and regulatory invisibility.” 

Stark expands on the somnolence of the agency’s Enforcement Division: “No agenda-setting speeches, no interviews, no podcasts, and no public messaging campaign laying out enforcement priorities.” Instead, “In FY 2025, the SEC initiated just four actions against public companies under current SEC Chair Paul Atkins – the fewest since FY 2013.”     

Some weeks after Stark’s downbeat summary, and giving credit to the extent due – on February 24, 2026, the SEC released the first updating of its Enforcement Manual since 2017. Substantive changes are scant. It’s illustrative of the limited scope that the press release emphasizes the generous extension from two to four weeks of the timeline by which investigation targets must respond to proposed enforcement action – the well-known Wells submission process. Actual impacts in practice will only emerge with time and experience – they will vary widely – and they will reflect the goals and priorities of the Chair. 

Otherwise, the announced plan is for an annual effort to embed into the Manual the Enforcement Division’s existing “best practices.” At minimum, devoting already scarce agency resources to this yearly project should at least blunt any criticism that to do so only once per decade might not itself have qualified as a “best practice.”  

Meanwhile the budget of the PCAOB has been slashed, its personnel count has dropped, and the activist rule-making and standard setting under the prior Chair have been side-lined. As reported by Bloomberg’s Amanda Iacone (see here and here), nothing in the qualifications or messaging of the newly-appointed Chair or new members coming from political appointments in the executive branch suggests any likelihood of revived agency energy.  

While in the UK, eight years have passed since the collapse of Carillion provided the center-piece for a banquet of over-heated rhetoric and under-realizable calls for “audit reform.” That sound and fury, never well supported or properly targeted, as I wrote at the time (DOA: Can Big Audit Survive the UK Regulators, Amazon 2019), has dissolved. Predictably, the government of Prime Minister Starmer has, as reported by the Financial Times on January 19, 2026, “scrapped a bill promising to reform the audit market,” rationalizing, as an unnamed official was quoted, that a bill “was ‘not the best use of our legislative time’ and did not align with the government’s broader push to cut regulatory red tape.”   

None of this is good news. Short-term, regulatory detachment may support a dangerous attitude of complacency and over-confidence; over the longer run, the effects will exacerbate the angst and agony to come with the next outburst of financial malfeasance. 

As Stark concludes his critique of the state of the SEC, “history suggests that when deterrence collapses, misconduct expands – and the odds of a market rupture rise.”

Private Equity and Other Third-Party Capital: Golden Cup or Poisoned Chalice

It’s a matter of perspective whether the recent rush of third-party capital to invest in accounting firms is of real relevance and concern. 

(For useful surveys of the background and the landscape of issues, see the information papers issued by Accountancy Europe in June and November, 2025, and the research report, "Private Equity Investment in Accountancy," issued in March 2026 by the International Federation of Accountants.)

The Big Four have so far shown no interest, nor is anyone making a case that they should, grown as they have to 2025 global revenues between $ 36 and $ 65 billion and with no inhibitions on their ability to fund their future aspirations. At the other end of the scale, small-firm transactions of all sorts proliferate, driven by Baby Boomer retirements and succession planning: buy-outs, acquisitions, consolidations, mergers and the arrival of outside capital in all forms and manners. How “success” in this tail of the sector will be defined and achieved will vary with the interests involved; the single certainty is that the small size of the firms and the deals means that the structure of the market will be unaffected. 

It’s in the “middle tier” where it matters – the firms for whom access to outside capital is argued to be an enabler of scale and, critically, at the same time large enough that their success or failure will be impactful – particularly as their audit reports on publicly-listed and large private companies are relied upon by shareholders and other providers of investor capital.  

Here, the relevant history can be dated – because of their magnitude - to the adoption of an ESOP structure by the US firm of BDO in the summer of 2023 with the support of Apollo Global Management, and the private equity positions taken in Grant Thornton US and UK in 2024 by, respectively, New Mountain and Cinven.  

It’s the early stage in the life cycle of typical private equity transactions. Across the population of mid-tier transactions there is as yet little record of either significant performance achievements or exit strategies, IPOs or deal restructurings. Understandably, commentators vary widely in the degree of their enthusiasm, beyond “wait and see.”

Meanwhile official attention continues to lag. The popular tone of “early days” was sounded in February, when it was reported by the Financial Times that “global regulators are set to probe the risks of private equity investments in audit firms, intensifying scrutiny of the rising number of buyouts in the financially sensitive sector.” In the continuing absence of substantive attention by local country regulators such as the SEC and the PCAOB in the US and the UK’s Financial Conduct Authority and Financial Reporting Council, the casual announcement by IOSCO, the global association of securities regulators, that it is “planning ‘an exploration of the growing interconnectedness between private equity activities and the audit sector’” amounts to a concession that these important authorities are giving a passing wave to developments in the capital markets that have already passed them by (emphasis added).

Which does not mean there are not serious issues that are sure to ripen into significance.  Three examples, all inter-related: 

First, how to address the inevitable extent of influence a PE investor will have? Even with the use of a holding company and a so-called Alternative Practice Structure with PE capital held in an organizationally separate subsidiary, the incentives and pressures cannot be wished away. 

Second, challenges to the identification and management of conflicts of interest and independence violations have yet to receive satisfactory attention. Even in the most plain-vanilla case, a PE fund could, at any time and without notice, create a conflict by adding to its investment portfolio an audit client of an accounting firm in which it is already invested - putting unmanageable stress on the risk-monitoring resources of the auditor. And the transaction complexities only mutate and expand, even as neither the profession nor its regulators have brought forward comprehensive guidance, much less authoritative standards. 

Third, a small but real number of these transactions are destined for failure – either in the basic investment transaction itself or with the emergence of an issue of practice quality and disputing that reaches the courthouse. There the issues of blame allocation and the ability of a PE investor to shield itself from damage claims and the loss of its position (or worse) will be aired out in ways that, history has taught, range from unpleasant to intolerable.          

Sidebar: Andersen's Unique Approach:

Although the profession’s rare attempts to structure themselves with public shareholders have met with little enthusiasm and less success, the December 2025 public offering and NYSE listing by the tax and consulting firm started up in 2001 and re-branded as Andersen in 2014, is worth mention if only because it is not likely to be replicated. That’s because the firm’s founders have maintained their original strategic decision to foreswear an assurance practice – for strategic reasons based on risk tolerance and exposure avoidance. Their future success will not depend on evolution into the audit space, then, but on their ability to manage a far-flung global aggregation of local practices while adapting to the same evolution of the profession as confronts their competitors under the influences of technology and artificial intelligence. 

Litigation and Enforcement Exposure: Evolving, and Inevitable

The ultimate risk to an accounting firm’s ability to provide quality service would be a “worst case” litigation judgment or enforcement penalty, large enough to overwhelm its financial resources – commercial and captive insurance and its partners’ interests. Rare as such cases are, history teaches that outbursts of financial malfeasance are inevitable in the capital markets, while the firms have never achieved “zero defects” or protected themselves from exposure at an existential level. The impact on a firm can be devastating – witness the collapse of Arthur Andersen in 2002 under the unbearable weight of Enron, despite the firm’s record of both profitability and cohesive global organization and governance. 

Recent developments in two of the “big cases”:

Settlement in an undisclosed amount is reported in the long-running lawsuit brought in London by the administrators of NHC Health, seeking damages of £ 2 billion against EY, which had audited the Abu Dhabi-based and scandal-ridden enterprise using staff from EY Middle East led by partners from the UK. A worst-case outcome would have been bearable by the EY organization as a global whole, with its reported 2025 revenue of $ 53 billion. The resources of its firms in the Middle East alone would not remotely have sufficed, however; leadership would have required a global support strategy, at a level that was not displayed in that organization in the effort of Project Everest, aborted in 2023, to separate the EY assurance and consulting practices. 

EY is well rid of a litigation of this magnitude. More broadly, however, the viability of the Big Audit model depends on the large firms’ continued ability to survive damage claims on such a scale, in context of the limits on their organizations, financial resources, and practice quality management capabilities.

That’s as demonstrated in the US, where the 2025 collapse of auto-parts conglomerate First Brands continues to resonate with scandal. At this writing the company teeters on the cliff of total collapse. Former CEO Patrick James and his brother Edward face criminal charges based on a catalog of machinations including unsecured exposures tied to accounts-receivable factoring and manipulations of off-balance-sheet debt and other credit facilities tied to assets and inventory. The company’s debt obligations range to $ 12 billion among the long list of capital providers. 

At this writing no claims are reported against auditor BDO, although even at early days two observations are available: 

·      The potential for catastrophic litigation exposure is not limited to the Big Four, but extends to any of the accounting firms having the scale and the risk tolerance to provide audits for use in the capital markets for clients large enough to do business – and generate claims - at such magnitude.

·      While bet-the-firm claims have historically been lodged by classes of shareholders against the auditors of public companies, the explosive growth in the means and provisions of credit by private sources has opened whole new areas of exposure for auditors – to capital providers whether in the form of finance based on inventory, receivables or payables, private credit, M&A support, or private equity.

 What's Coming - In the Next Paper:
A close look at the greatest threat to the Big Audit model - unlikely to resemble Enron/Andersen; why Sustainability assurance risks are under-appreciated; the multiple dimensions of the First Brands scandal - whether or not there are claims against BDO.

Feedback, comments, inquiries - email: jrpllc@mac.com