The head of KPMG in the UK has admitted that the Big Four audit firms are losing public trust and that change will be needed.
However, Bill Michael, UK chairman and senior partner as well as a member of KPMG’s global board, said it was not the right time to split audit from advisory services because it would be like “trying to create Frankenstein’s monster.”
KPMG is under investigation in the UK for audits of the collapsed construction and outsourcing company Carillion.
A review is about to be launched in the UK to examine whether the current model for audit is appropriate for the current business environment.
In May, a parliamentary report not only criticised KPMG for its work at Carillion but also the audit regulator, the Financial Reporting Council.
The report said: “Waiting for a more competitive market that promotes quality and trust in audits has failed. It is time for a radically different approach.
“We recommend that the government refers the statutory audit market to the Competition and Markets Authority.”
The report said separating audit from advisory services should be considered.
In an interview for the The Times, Bill Michael said he was a “proponent” of making changes.
“The profession needs to be re-evaluated, otherwise we run the risk of eroding trust.
“We can’t have a profession that isn’t trusted. It has consequences for society and the capital markets. You only need one bad apple to lose trust in the system,” said Michael.
However, he appeared to concede that a check was needed on the growth of advisory services.
“If advisory services are allowed to grow and grow we may find ourseves in a situation where nobody pitches for audits. That’s not good for markets or investors.”
In April Grant Thornton’s UK headquarters said it would no longer tender for large audit contracts, because the process was too expensive and the effort was always unsuccessful. The move suggested there was a structural problem in the audit market, which the firm—one of the top six—was unable to overcome on its own.