All too often into the breach

Revelations of a fresh internal probe into a possible breach of independence rules at KPMG have a weary familiarity. Auditors, like bankers, lawyers and other professional services, tread a fine line between keeping clients (and their own bottom lines) sweet and avoiding the sort of overreach that rings alarm bells.

Accounting scandals at felled UK companies from cafe Patisserie Valerie to outsourcer Carillion have soured public perceptions of the industry. Regulatory ramp-up, however, has been far more modest. The watchdog Financial Reporting Council has so far committed to a £5.5m hike in its voluntary levy on companies, and plans to add another 100 staff. Critics, baying for blood from the Big Four, want reform. The latest news from KPMG vindicates that call. The council has been glacially slow to take action and a soft touch in handing out penalties.

Probes are still under way at KPMG into an audit of Rolls-Royce Group in the year to end-2010. Fines, when they do come, are often pared back: see the 20% reduction on a settlement in the debacle at the Co-operative Bank, which nearly collapsed when a £1.5bn capital shortfall came to light.

The move away from using audit as a loss leader for consulting is more a drift than a switch. In 2018, the Big Four gleaned up to half of revenues from nonaudit services as a portion of total audit revenues in 2018, according to the council’s data. KPMG has since pushed its own ratio below a third for last year, based on its latest transparency report. The beefed-up council is acknowledgment of its failures to date, and addresses some of the tougher proposals by Sir John Kingman in 2018. The slew of misdemeanours at the Big Four shows, a steely hand is needed more than ever. /London, February 26

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