It’s all hands on deck moving from Big 4 to 4 people…
When multinational companies switch auditors, it’s usually a move that signals routine rotation, cost management, or strategic realignment. But P&O Ferries’ recent decision to appoint a four-person audit firm to sign off its delayed 2023 accounts – following the resignation of Big Four auditor KPMG – has triggered deeper questions about audit quality, independence, and corporate governance.
Background: From Controversy to Concern
P&O Ferries is no stranger to scrutiny. The ferry operator made headlines in 2022 after abruptly dismissing 786 UK-based workers, replacing them with lower-cost international agency staff. The decision, widely condemned, damaged the company’s public image and sparked investigations into its employment practices.
Now, nearly two years later, the company is again in the spotlight—this time for its financial reporting practices. Its 2022 accounts were published 11 months late, disclosing £47 million in severance-related costs. The 2023 accounts are already eight months overdue.
KPMG, one of the UK’s leading audit firms, resigned in March, stating it had been unable to complete the audit “to the required standard within management’s desired timetable.” While late filing of accounts is a criminal offence, it rarely leads to anything more than a financial penalty from Companies House. Still, auditor resignation letters with critical remarks are relatively rare and often act as red flags for investors, regulators, and financial analysts.
Enter: Just Audit & Assurance (JAA)
The new auditor, Just Audit & Assurance (JAA), is based in Witney, Oxfordshire, and employs only four people. Despite its size, the firm says it can call on a network of 35 auditors when needed. The audit fee agreed with P&O is £265,000—by far JAA’s largest contract, making up about 8% of the firm’s revenue.
This shift – from a Big Four auditor charging £1.3 million in 2022 to a much smaller practice charging a fraction of that amount – raises important questions about audit quality, risk, and independence.
Audit Risks and Professional Concerns
From an audit risk perspective, several red flags emerge:
- Independence and Fee Reliance Risk
A fundamental principle of auditing is independence. When one client makes up a significant portion of an auditor’s income, it raises concerns about the auditor’s objectivity. Even if no undue influence is exerted, the perception alone can damage public trust. - Competence and Resource Risk
Auditing a large, complex organisation like P&O Ferries requires significant resources and industry-specific expertise. While JAA’s managing partner Jonathan Russell insists the team’s average audit experience exceeds 20 years, the scale and scope of auditing such a conglomerate poses challenges, especially if unexpected financial or operational complexities arise. - Going Concern and Financial Viability Risk
P&O’s repeated delays in publishing its financial statements and the high-profile fallout from mass layoffs may suggest underlying liquidity or profitability concerns. An experienced and adequately resourced audit team is vital to evaluate whether the company can continue as a going concern. - Opinion Shopping Risk
When a company switches from a high-profile firm to a smaller one, it may prompt speculation that it is searching for a more favourable audit opinion—especially when the previous auditor resigns after being unable to complete the audit. While JAA strongly denies this, external stakeholders may still question the intent and process.
The Broader Governance Implications
The audit appointment also draws attention to corporate governance. A company of P&O’s size would typically be expected to engage auditors with comparable stature and resources. Deviating from this norm can erode confidence not just in the company’s financials but in its governance framework.
A smaller firm auditing a major transport company may struggle to maintain the professional scepticism required, especially when the client is vital to the firm’s revenue. Even with high integrity, small firms are not immune to the practical pressures of client dependence.
A Matter of Public Interest
P&O Ferries transports over 4 million passengers a year and employs thousands of workers. Its financial stability is not just a corporate concern—it has real-world implications for jobs, safety, and services.
For business students, this case highlights the interplay between audit theory and real-world practice. It serves as a cautionary example of how audit independence, regulatory oversight, and governance structures must work together to uphold trust in financial reporting.
The audit profession—still recovering from reputational damage after the collapse of Carillion, Wirecard, and others—must demonstrate that lessons have been learned. Whether large or small, audit firms have a duty to ensure that size never compromises standards.
Conclusion
The P&O Ferries audit story isn’t just about a company’s choice of accountants. It’s about public trust, transparency, and how the integrity of financial reporting underpins our economic systems. For aspiring accountants and auditors, it’s a case study in the risks and responsibilities that come with signing your name at the bottom of a set of accounts.
