TWO OF BIG FOUR TO STOP CONSULTANCY WORK FOR FTSE-350 AUDIT CLIENTS


TWO OF THE BIG FOUR accounting firms are to stop providing consulting services to FTSE firms they audit. Deloitte and KPMG are to ban the provision


Deloitte and KPMG to phase out lucrative non-audit add-ons for big companies Both KPMG and Deloitte have responded


to a review of the sector by the Competition and Markets Authority (CMA), which is looking at ways to break-up the sector.


of non-audit services to FTSE-350 and large unlisted public interest audit firms. This follows widespread criticism of


Big Four audit firms – which currently audit 97 per cent of FTSE-350 companies – having conflicts of interest, reining in criticism of audit clients for fear of not upselling consultancy add-ons. Currently, firms are allowed to earn up


to another 70 per cent of their audit fee by supplying non-audit fees to FTSE 350 clients. Latest annual figures show that Deloitte


earned £103m in non-audit fees on top of £171m in audit fees, while KPMG earned £79m in non-audit fees on top of £198m in audit fees for FTSE 350 clients. The move will potentially open up the


audit market to mid-tier accountants earning tens of millions in fees.


Deloitte’s response, obtained by City A.M.,


included a call for the introduction of a cap on how many large audit contracts any firm can have, and a stronger governance structure. In


its response, the Institute of


Chartered Accountants for England and Wales (ICAEW) has suggested a cap of 60 per cent for the Big Four. Mid-level accounting firm Mazars, which would like


to vie for FTSE 350 business, has called for the cap to be set higher at 80 per cent. KPMG’s decision was revealed in a


note sent by UK chairman Bill Michael to 625 UK partners, which outlined the firm’s response to the CMA review, and one led by Sir John Kingman, which is focusing on the function of the Financial Reporting Council (FRC). In the document, obtained by Sky News,


Michael said that “to remove even the perception of a possible conflict, we are currently working towards discontinuing the provision of non-audit services [other than those closely related to the audit] to the FTSE-350 companies we audit”. Michael wrote: “The roots of our


profession lie in a fundamental need for trust, assurance and confidence in the capital markets … The recent erosion of trust in our profession is also our problem to fix and I am determined that we take the right course of action to fix it.”


FDS SHOULD BE PERSONALLY RESPONSIBLE FOR ACCOUNTING ERRORS, SAYS BIG FOUR BOSS British regulators should adopt US-style reporting, says EY


DIRECTORS OF FINANCE should take individual responsibility if their companies make errors in financial reports, according to one of the UK’s biggest audit firms. EY, one of the Big Four audit firms, said top bosses and


directors must personally confirm the integrity of their companies’ submitted accounts. Britain should adopt the US system of corporate


responsibility, EY’s UK chairman Steve Varley told around 700 partners in an email sent last Friday. In an email obtained by Sky News, Varley summarised the accountancy giant’s response to a probe by the competition watchdog into the UK audit market following several major scandals. EY is the first of the Big Four, which collectively


audit 97 per cent of the FTSE 350, to have its response to the CMA revealed. Varley wrote: “Management and directors


(including audit committees) are primarily responsible for the accuracy of corporate information, upon which shareholders and stakeholders rely. They must play a greater role in that regard and should be held accountable through a framework of enhanced regulatory oversight.”


4 DIRECTOR OF FINANCE DOFONLINE.COM Known as Sarbanes-Oxely aſter the US senators behind its


introduction in the wake of the Enron scandal, the corporate accounting regime holds CFOs and CEOs personally liable for errors in audited accounts. The summary of EY’s response to the CMA does not refer to


a potential cap on the market share of the big four auditors. In its response, the Institute of Chartered Accountants for England and Wales (ICAEW) has suggested a cap of 60 per cent for the Big Four. Mid-level accounting firm Mazars, which would like to vie for FTSE 350 business, has called for the cap to be set higher at 80 per cent. Meanwhile, Stephen Haddrill, boss of sector regulator the Financial Reporting Council (FRC), has announced that he will step down at the end of 2019. The FRC was described as “toothless” in a parliamentary report earlier this year. The watchdog faces an existential threat from a review of its role and remit by Sir John Kingman, chairman of Legal & General.


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