The UK’s largest accounting firms are preparing themselves for a potential breakup of their offerings.
After two influential committees of MPs called on the UK’s competition regulator to look into the workings of the Big Four firms in the marketplace and their impact on wider stakeholder groups, the firms’ senior representatives admitted they were working on contingencies if they were broken up.
The committees yesterday reported their findings into the collapse of Carillion. Along with major criticism of accounting regulator the Financial Reporting Council, and governance at the failed outsourcer—plus former executives and non-executives—the report stated that the audit market works for Big Four firms (KPMG, EY, PWC and Deloitte) but “fails the wider community”.
A review by the Competition & Markets Authority (CMA) should consider separating the audit arms of the firms from other services, recommended the MPs. The CMA is now headed by Andrew Tyrie, a strong critic of the largest accounting and audit firms in the past.
KPMG UK chairman Bill Michael said the firm had considered breakup scenarios, with the current model “unsustainable”, reported the Financial Times. “We have to reduce levels of conflict,” he said.
PwC stated it had worked on a business continuity plan, while the fifth firm BDO also had contingency plans in place if audit was ring-fenced.
Grant Thornton, which has pulled out of tendering for FTSE 100 audits because of its cost—and subsequently failing to win work—said that hiving off audit arms would fail to solve “systemic issues in the audit market”.