Big 4 accountancy giants ‘should be broken up’ say MP’s

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The UK’s ‘Big-Four’ accountancy firms should be forcibly split into audit and non-audit businesses, in the wake of recent scandals, according to an influential committee of MPs.

The report by the Business, Energy and Industrial Strategy (Beis) Committee, comes after the big 4 came under review by the Competition and Markets Authority (CMA) following the likes of the Carillion scandal and the failure of department store BHS.

In December last year, the CMA recommended a split between audit and advisory businesses, with separate management and accounts

It also recommended more accountability for those appointing auditors, with the aim of strengthening their independence; and a “joint audit” system, with a Big Four and a non-Big Four firm working together on audits.

The Beis has now proposed an internal split between the two functions, saying the audit and consultancy arms of Deloitte, EY, KPMG and PwC should be divided, in order to drive up competition and quality.

The report has been dubbed as “heavy handed” by the CBI Deputy Director-General,Josh Hardie, who says: “The Committee’s idea to force a break-up of the ‘Big 4’ jumps the gun. It puts forward a heavy-handed solution rather than waiting for the evidence of the reviews investigating the state of the current market and future vision for audits.

He adds: “Businesses are aware there are problems with the audit market and it is a tough challenge to fix them. High-profile corporate failures have rightly prompted searching questions.

“But the UK’s position as a stable, evidence-based country is already under threat. So rushing to simplistic measures rather than following a clear, considered long-term approach will damage our reputation further.

“The industry is open to change to enhance public trust and investor confidence. But let’s do it so it works for a global, growing Britain,” concludes Hardie.

Other groups seem less opposed to the recommendations with the Institute of Directors saying it offers some “useful ideas” and the Investment Association calling the recommendations an “important step”.

The Committee said: “People are tired of hearing excuses for failure and are intolerant of blame being shifted from one set of well-paid people to another,” they said, adding: “Radical change is needed”.

Meanwhile, Scott Knight head of audit at BDO LLP, says: “We are pleased the BEIS Select Committee supports the introduction of a market cap on the number of FTSE 350 audits that any single firm can take on. This measure stands out above all others as the most practicable way to improve choice, competition and resilience – and should go hand in hand with enhanced regulatory oversight from the Audit, Reporting and Governance Authority (ARGA).

“The biggest risk is that the ongoing Brydon Review is used as an excuse to kick the issue of audit reform into the long grass. We therefore welcome today’s report and hope this momentum is maintained.”