Wednesday, June 23, 2021
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UK watchdog asks big 4 to separate audit practices

LONDON: The UK dominant accounting firms must separate their audit units from other businesses by June 2024 as the country’s accounting watchdog reacts to shortcomings that led to the collapse of several companies.

The Financial Reporting Council is asking the so-called Big Four — KPMG, Deloitte, Pricewaterhouse-Coopers LLC and Ernst & Young — to agree to operational separation to ensure audit practices don’t rely on “persistent cross-subsidy from the rest of the firm,” it said Monday in an emailed statement.

Auditors are under greater regulatory scrutiny than ever after a serious of high-profile lapses in recent years, with Ernst & Young’s role in the collapse of German payments provider Wirecard AG now under the microscope.

“These final principles follow extensive discussions with the audit firms,” the regulator said. “The FRC is now asking the Big Four firms to agree to operational separation of their audit practices on this basis and to provide a transition timetable to complete implementation by June 30, 2024 at the latest.”

The guidelines aim to shield auditors from being influenced by other part of a firm’s business “that could divert their focus away from audit quality,” the regulator said. “KPMG supports operational separation in the U.K.,” Jon Holt, the firm’s head of U.K. auditing said in a statement. “It is clear however that operational separation of the U.K.’s audit firms is just the first step on the journey to restoring trust in U.K. Plc.”

Spokespeople for Deloitte and EY were either not available or didn’t immediately return messages seeking comment outside office hours. “We share the FRC’s objectives of improved quality and confidence in audit,” PwC said in statement. “We will continue to engage constructively with the FRC on the complexity and detail of these principles.

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