Calls for breaking up the big four accounting firms are on the rise following audit failures at Carillion and retailer BHS.
In a first such intervention, with the role played by accounting firm KPMG in the collapse of construction company Carillion, Britain’s accounting watchdog has opened a full review of standards and culture at the accounting firm.
In January, Britain Financial Reporting Council (FRC) had stated, it had opened a second investigation specifically into how KPMG audited the books of Carillion.
“Following that referral and discussions with KPMG, the FRC, supported by A&O Consulting, has commenced an assessment of the governance, controls and culture within KPMG’s audit practice,” said the FRC in a statement.
In June 2018, FRC had said KPMG had shown an “unacceptable deterioration” in how it audited top British firms; it was the first to undergo special supervision.
According to a statement from KPMG, it is now 18 months into an audit quality transformation program, and it was essential the regulator had confidence the “right outcomes” were being delivered.
“With this in mind, we welcome that the FRC has commenced an assessment of our audit practice. The FRC is being supported by Allen & Overy Consulting, led by Sally Dewar,” said KPMG. “We see this as a valuable opportunity for the FRC to test our progress and to confirm next steps for our audit transformation.”
It went on to add, such “rigor and challenge” will become increasingly common in the sector and is a change for the better.
According to the FRC, this was the first time it had commissioned an outside body to conduct an independent review of an auditor.
The FRC did not say when it would publish the findings.
On Tuesday, British lawmakers have called for KPMG, EY, PwC and Deloitte, collectively known as the Big Four accounting firms, to be broken up in order to improve standards and transparency in book-keeping after audit failures at Carillion and retailer BHS.