The UK’s Big Four accountancy firms should be separated into audit and non-audit businesses, says an influential committee of MPs.
Deloitte, EY, KPMG and PwC conduct 97% of big companies’ audits while also providing them with other services.
They are under review by the Competition and Markets Authority (CMA), which has proposed an internal split between the two functions.
But now MPs are calling for a full structural break-up of the firms.
The CMA’s review, released on 2 April, follows 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.
More accountability for those appointing auditors, with the aim of strengthening their independence
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”.
“The client relationship, and the conflicts of interest which abound, undermine the professional scepticism needed to deliver reliable, high-quality audits.”
Ms Reeves said vested interests should not be allowed to get in the way of positive change, adding: “We must not wait for the next corporate collapse.”
Focus on fraud
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.
The former finance director of the chain, Chris Marsh, is under investigation by the Serious Fraud Office.
However, he did not agree with MPs that the Big Four accountancy firms should be broken up.
‘Need for change’
KPMG said it was co-operating fully with the various inquiries under way into the audit system.
The FRC said it decided to open an enquiry into KPMG following matters the firm had self-reported.
The enquiry involves an assessment of the governance, controls and culture within KPMG’s audit practice, the FRC said.
“This will be detrimental to audit quality and could materially damage the UK’s competitive position as a leading capital market.”
