Big Four accountants plan for break-up

The break-up of the Big Four accounting firms seems to be edging closer. The main story in today’s FT is that KPMG, Deloitte, EY and PwC have made contingency plans for a break up of their UK businesses.

It’s a solution to the conflict of interest problem in the audit sector that’s favoured by politicians, academics and regulators alike.

Pressure increased after big corporate collapses such as Carillion shone a light on the Big Four’s work as auditors and consultants for the UK’s largest companies.

Plans are in place

Bosses from the top four firms, plus Grant Thornton (five) and BDO (six), say plans are already in place for a break-up. Regulators could insist they separate the audit function from their consulting work.

A parliamentary report says the four operate as a “cosy club incapable of providing the degree of independent challenge needed”.

A break-up could potentially split each group into two smaller audit/consulting firm or insist they spin off their consulting work to create audit work only.

Opening the door to more competition

The latter could be seen as opening the door to more competition.

Bill Michael, chairman of KPMG UK, tells the FT that the firm has been thinking about break-up scenarios “for some time” as the current business model of the Big Four is “unsustainable”.

“We are an oligopoly — that is undeniable,” he says.

We have to reduce the level of conflicts

“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.”

PwC has “a documented business continuity plan covering a range of scenarios that could threaten the existence of the firm”.

While EY are “working alongside regulators and standard setters, the profession can evolve to best serve business, investors and stakeholder needs”.

While some in the industry think a break up would only scratch the surface, there is a groundswell of opinion outside the industry urging a split. Vince Cable, leader of the Liberal Democrats, thinks the “only way” to improve competition was to break them up. “Unless you do that, three or four companies will continue to completely dominate,” he says.

Interesting times.

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Ian Moss

Ian Moss is the Editor of Accounting Insight News. He's been a journalist since leaving university and has worked for the Daily Mirror and Financial Times, among other media groups. Likes running, guitar, golf, dog-walking.

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