PwC, Deloitte, KPMG And EY Told To Separate Consulting From Auditing

PwC Deloitte KPMG And EY

The accounting watchdog in the UK has told Deloitte, EY, KPMG, and PwC to split their audit and consulting businesses in the next four years. This is in a bid to improve corporate reporting following a string of high-profile accounting scandals. 

The Financial Reporting Council said in a statement Monday that the Big 4 firms have until October 23 to submit a plan for implementing ‘operational separation’, which will need to be completed by June 2024. According to the Financial Reporting Council, the objective of the operational separation by the Big Four is to ensure that audit practices are focused on the delivery of high-quality audits in the public interest and do not rely on persistent cross-subsidy from the rest of the firm.

This move is singlehandedly the biggest shake-up of the audit industry in decades. The FRC said the big four should focus on the delivery of high-quality audits in the public interest. Audits shouldn’t depend on financial support from the rest of the firm. 

Start Your Business In 30 Days

See Also: 100 Profitable business ideas to start now for aspiring entrepreneurs and investors.

The Reason For The Separation

So, this new development was triggered just weeks after Germany’s Wirecard filed for insolvency following the discovery of a $2 billion hole in its accounts. The scandal attracted public criticism and raised questions over how the payments company’s auditor, EY, could have missed the accounting irregularities for so long and led to fresh scrutiny of the sector. Investors rely on auditors for assurance that a company’s accounts provide a true reflection of its earnings.

Furthermore, a lot of discrepancies that hovering around the operations of the auditing giants has led to this new development. Also, strings of corporate failures, including Carillion and BHS, which led to three government-backed reviews that recommended wide-scale reforms.

The spokesperson for the FRC made it clear that Monday’s announcement is unrelated to Wirecard saga. He said the regulators had already planned to publish the guidelines — the outcome of several independent reviews into the quality and effectiveness of auditing and corporate reporting. 

Regulators say that the companies’ lucrative advisory arms create a conflict with their auditing divisions as it encourages auditors to be restrained in order to protect consulting opportunities.

“Today the FRC has delivered a major step in the reform of the audit sector,” FRC CEO, Jon Thompson said in a statement, adding that the regulator plans to introduce “further aspects of the reform package over time.”

Under the new principles, the finances of audit divisions must be ringfenced with a separate profit and loss account. Also, firms will have to introduce an independent audit board to oversee the practice.

The Big Four Revenue From Consulting

The Big Four (PwC, Deloitte, KPMG, and EY) now generate the majority of their revenues from consultancy practices, with only around 20% coming from auditing. The new principles seek to address concerns that the growth in consultancy revenues has reduced the focus on audit quality. FRC figures show that audit fees accounted for only about a fifth of the Big 4’s £10.95 billion ($13.7 billion) in combined fee income in the United Kingdom in 2018.

While this might come as a shock to many, the parties involved, Big 4 firms have welcomed the announcement. They stated that this will help to restore confidence in the sector.

What’s your take on this? Do you think they should be regulated?

Let’s create visibility for your brand today and put your business on the world map. Contact us today to make your brand the preferred choice among our audience of entrepreneurs and business leaders.



Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Join Entrepreneurs Family

No spam, only business insights and tips. 

Entrepreneurs Sign Up

Business Registration

Most Popular

Join Entrepreneurs Family

No spam, only business insights and tips. 

Entrepreneurs Sign Up

Related Posts

Steps to launch a business

10 Essential Steps to Launch a Business in 30 Days

There are steps to most things in life. Sometimes, we struggle when we fail to follow the steps. Starting a business is no different. There are essential steps to launch a business. Starting your own business is an exciting adventure. The idea of turning your passion into profit and being

Benefits of entrepreneurship

The Benefits of Entrepreneurship: Why Start Your Own Business?

In a world driven by innovation and opportunity, the idea of entrepreneurship has never been more enticing. The concept of being your own boss, charting your destiny, and reaping the rewards of your hard work is alluring to many. But what are the concrete benefits of entrepreneurship, and why should

Signs That Show It's Time to Start Your Business

Seven Signs That Show It’s Time to Start Your Business

Embarking on the journey of entrepreneurship is like setting sail on an uncharted sea—full of exciting possibilities and the potential for tremendous challenges. We will be looking at the signs that show it’s time to start your business. For many aspiring entrepreneurs, the decision to start a business is accompanied

Scroll to Top

Join Entrepreneurs Family!

Get access to FREE business insights and funding opportunities daily.

Entrepreneurs Sign Up