Hi

In my previous article, “There’s nothing too much money cannot spoil,” I argued that the encroachment of private equity (PE) into the audit profession was not just unwelcome but dangerous. Since then, the debate has moved on—not because the risks have gone away, but because even the regulators are now acknowledging that the foundations of the audit profession may need rebuilding.

The Institute of Chartered Accountants of Scotland (ICAS) has called for a full-scale review of the rules governing who can own audit firms. But let’s be clear: this is no technical housekeeping. It’s a red flag.

What’s really at stake?

At the heart of it all is a simple question: Can a profession whose job is to act in the public interest also serve a master whose priority is short-term financial return?

I don’t think so. And here’s why.

Audit isn’t like selling widgets or launching an app. It’s about trust, independence and a duty to third parties—not shareholders, not the client, and certainly not a private equity house.

And yet, PE firms are buying into audit practices, bundling them together, and promising transformation. We’ve heard this song before. From retail to care homes to veterinary, the pattern is depressingly familiar: buy, cut costs, crank up revenue, flip.

This may work—financially—in other sectors. But audit is different.

Debt and independence don’t mix

Private equity deals are typically leveraged. That means piling debt onto the target business—in this case, the audit firm itself. So now we have audit firms laden with debt, trying to maintain independence while also servicing loans and meeting aggressive performance targets. That’s a conflict of interest waiting to happen.

ICAS itself warns that this debt can “unduly influence behaviours” and lead to corners being cut. Staff are stretched, scopes are reduced, risk tolerances rise. It’s a race to the bottom with audit quality as the casualty.

Are we solving the wrong problem?

One of the common defences of PE investment is that it solves two problems: succession planning and capital for digital transformation.

It’s true that some audit firms are struggling with succession. Younger professionals are saddled with student debt and less inclined to buy into a traditional partnership. And yes, the pace of technological change is relentless—keeping up with AI, automation and analytics requires investment.

But here’s the question no one seems to ask: Why can’t these highly profitable firms reinvest their own earnings?

As I noted in my earlier piece, many partners in the Big Four take home over £1 million a year. Surely it’s not beyond reason to expect them to reinvest a portion to secure the future of the profession? If they’re unwilling to do so, that’s a governance failure, not an argument for private equity.

Consolidation or collapse?

Some PE advocates argue that consolidation is good—it creates scale, encourages competition, and allows new mid-tier challengers to emerge.

But the data tells another story. According to the FRC, the number of registered audit firms in the UK fell by over 20% in four years, from 5,127 in 2019 to just over 4,000 in 2023. Smaller businesses now have fewer choices. Fewer firms means less diversity, less innovation, and ultimately more risk.

And what happens when a mega-firm, created by merging ten smaller practices, decides that audit is no longer profitable and exits the market? That’s not resilience. That’s fragility.

Culture clash

Private equity is culturally at odds with the audit profession. Audit is slow, cautious, sceptical. PE is fast, aggressive, impatient.

Auditors are trained to say, “Hold on, let’s check that.” PE investors are trained to say, “How fast can we grow and what’s the exit multiple?”

Combine those two cultures and what do you get? Confusion, pressure, and ethical risk. ICAS warns of potential damage to firm culture and recruitment. Who wants to join a profession where ownership is vague, incentives are short-term, and values are compromised?

Is there a better way?

ICAS wisely suggests that this isn’t just about PE. The real question is whether the current ownership structure—based on outdated legislation and assumptions—is still fit for purpose.

Maybe we do need to rethink how audit firms are structured and financed. But let’s start from first principles.

• How do we preserve independence?
• How do we ensure long-term stewardship?
• How do we balance public interest with commercial sustainability?

The answer isn’t to abandon the safeguards that have (mostly) worked. It’s to strengthen them, modernise them and—if necessary—develop new ownership models that allow innovation and investment without surrendering control.

Where next?

Regulators are watching. ICAS, the FRC and others are beginning to realise that without strong action, we’ll end up with a profession that looks like a private equity portfolio—hollowed out, over-leveraged, and dangerously fragile.

We need open debate, yes. But we also need resolve. Audit matters too much to be handed over to financiers with five-year horizons and exit targets to hit.

The profession must draw a line. Investment is welcome. Exploitation is not.

If audit becomes just another asset class, we’ll all lose—investors, creditors, regulators, and the businesses that rely on trust, objectivity and rigour.

The audit profession was built to protect the public. It should not be sold to the highest bidder. Or do you disagree?

Noel Guilford