Watch­dog tells Big Four to split au­dit arms in shake-up

The Daily Telegraph - Business - - Business - By Michael O’Dwyer and Si­mon Foy

Firms will not have to sell any op­er­a­tions but must make sure they are to­tally in­de­pen­dent

THE Big Four ac­count­ing firms have been or­dered to split their au­dit op­er­a­tions from the rest of their busi­ness in an ef­fort to boost book-check­ing qual­ity af­ter a string of scan­dals.

Deloitte, EY, KPMG and PwC have been warned by the in­dus­try watch­dog that their split must be com­plete by June 2024 and that they must out­line how it will be achieved by Oct 23 this year. The shake-up – part of the reg­u­la­tor’s wider re­form agenda – is one of the most sig­nif­i­cant the in­dus­try has faced and fol­lows three gov­ern­ment­backed re­views that rec­om­mended wide-scale re­forms.

Firms will not have to sell any op­er­a­tions but must make sure they are to­tally in­de­pen­dent. It comes af­ter reg­u­la­tors at the Fi­nan­cial Re­port­ing Coun­cil is­sued a record £42m in fines for shoddy au­dits last year and the in­dus­try’s rep­u­ta­tion was hit by a slew of cor­po­rate fail­ures at the likes of Car­il­lion, BHS, Thomas Cook and Patis­serie Va­lerie, where ac­coun­tants failed to sound the alarm be­fore dis­as­ter struck.

Crit­ics say there is a con­flict of in­ter­est caused by the Big Four’s lu­cra­tive ad­vi­sory arms, which of­fer con­sul­tancy ser­vices and work on cor­po­rate deals.

It is claimed this dis­cour­ages au­di­tors from chal­leng­ing com­pany di­rec­tors about their ac­counts, for fear of miss­ing out on highly paid con­tracts that are used to subsidise their less prof­itable au­dit di­vi­sions.

The Big Four wel­comed the move, a less se­vere in­ter­ven­tion than the com­plete split they had pre­vi­ously feared which could have forced them to sell their con­sult­ing arms al­to­gether.

The new rules re­quire the fi­nances of au­dit di­vi­sions to be ring-fenced with a sep­a­rate profit and loss ac­count

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