UK audit giants ‘should be broken up’

Britain’s Big Four accountancy firms should be broken up, according to a scathing report from MPs which claims the firms have a stranglehold over the audit market which has contributed to serious corporate failures.

KPMG, Deloitte, PwC and EY conducted the audits at all but one of the UK’s 100 biggest listed companies last year. At the same time they offer consultancy services to these same firms, prompting questions of impartiality.

All four are currently under review by the Competitions and Markets Authority (CMA), which proposed an internal split between the two functions. The competition watchdog has also called for FTSE 350 firms to have their books looked at by more than one auditor, one of which would have to be from outside the Big Four.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

Now MPs have gone a step further. In what The Guardian describes as a “hard-hitting” report, the business, energy and industrial strategy (Beis) committee has called for a full structural break-up of the firms into separate audit and consulting arms.

“The big four’s dominance has fostered a precarious market which shuts out challengers and delivers audits which investors and the public cannot rely on,” said Rachel Reeves MP, the Labour chair of the committee.

Their break-up would make the firms more effective in “tackling conflicts of interest” and providing the “professional scepticism” needed to deliver high-quality audits, the committee added.

The Daily Telegraph says the radical plan follows “extensive criticism of the sector for its failure to anticipate and flag up a number of scandals including the collapses of Government contractor Carillion and department store chain BHS, and a black hole discovered in Patisserie Valerie’s books”.

A scathing report from the department for business, energy & industrial strategy and work and pensions committees accused the Big Four of being “complicit” in Carillion’s collapse, arguing firms were putting their own profits ahead of good governance at the companies they were auditing.

The Financial Reporting Council (FRC) announced on Tuesday it had opened its own investigation into KPMG’s audit of Carillion.