A cross-party committee of MPs has suggested that the UK’s Big Four accountancy firms should be separated into audit and non-audit businesses. Deloitte, EY, KPMG and PwC conduct 97% of big companies’ audits in the UK along with other services.
They are under review by the Competition and Markets Authority (CMA), which has proposed an internal split between the two functions.
Now, the MPs want a full structural break-up of the firms. According to the CMA’s review released on Tuesday, said that a high-profile company collapses such as construction firm Carillion, which was audited by KPMG.
It comes on the same day that the Financial Reporting Council (FRC) announced it had opened an investigation into KPMG’s audit of Carillion.
In last December, the CMA provided three main suggestions including a split between audit and advisory businesses, with separate management and accounts, More accountability for those appointing auditors, with the aim of strengthening their independence and a “joint audit” system, with a Big Four and a non-Big Four firm working together on an audit.
In a report, the Business, Energy and Industrial Strategy (BEIS) Committee endorsed the CMA’s proposals, but said a full break-up of the Big Four would “prove more effective in tackling conflicts of interest”.
Among its other recommendations, the committee said there should be a pilot scheme of joint audits for the most complex cases, “to enable the challenger firms to step up”.
It also called for more effort by auditors to tackle fraud at companies.
“In light of the failings at Patisserie Valerie, audits must state how they have investigated potential fraud, including by directors,” the committee said.
