Will Calls by British MPs To Force Big Audit Firms to Break Up Resonate in Asia?

Big Four accounting firms in the UK may be forced to separate their audit practice from their consultancy arm as two parliamentary committees issue a scathing report on their role in the collapse of government contractor Carillion in January.

The parliamentary report said Deloitte, EY, KPMG and PwC form a "cosy club incapable of providing the dgeree of independent challenge needed."

KPMG was Carillion's long-time external auditor, while the other three undertook consulting and internal audit engagements with the bankrupt company, which was given a clean bill of health by auditors but later collapsed under the burden of massive debts.

'We are an oligopoly'

The four audit firms, and also Grant Thornton and BDO, appear resigned to a break-up. “We are an oligopoly — that is undeniable,” Bill Michael, KPMG chairman of the UK business, told the Financial Times.

“I can’t believe the industry will be the same [in the future]. We have to reduce the level of conflicts and . . . demonstrate why they are manageable and why the public and all stakeholders should trust us.”

For its part, PwC said it had "a documented business continuity plan covereing a range of scenarios that could threaten the existence of the firm." EY expressed willingness to work with regulators and standad setters to evolve the profession "to best serve business, investors and stakeholder needs."

International implications

Accounting executives argue that a forced break-up of audit firms only in the UK would be ineffective, according to the Financial Times. Other regulators will need to be involved to impose similar initiatives in their jurisdictions.

"If you have to split the firms up, that has to be done internationally, although maybe the UK could lead the way," says KPMG's Michael.