KPMG imposes self-enforced ban on non-audit work for FTSE 350

Reports circulated by the UK media have stated that KPMG is to stop undertaking non-audit work for FTSE-350 companies whose accounts it supervises. While the Big Four continues to come under scrutiny for alleged conflicts of interest, following a slew of accounting scandals, KPMG has become the first of professional services industry’s big beasts to make such a pledge, in a bid to cool growing clamour for state intervention.

Over the past five years, the Big Four’s share of FTSE 350 auditing expanded from 95% to 98%, in spite of a series of supposedly stringent reforms from the EU and UK aimed at tackling a lack of competition in the sector, since the 2008 financial crisis. Fears of both monopolisation and conflicting interests have both grown through 2018, meanwhile, as all of the Big Four were implicated in the collapse of Carillion. These fears are precisely why ‘breaking up’ the Big Four in the UK has suddenly become a major talking point among Britain’s politicians.

Critics are increasingly comparing the Big Four to Arthur Anderson, which was heavily involved in the Enron accounting scandal which caused the US’ largest energy firm to go bust. The incident led to the de facto dissolution of Arthur Andersen, which was then part of the ‘Big Five’, and saw the remaining four firms weigh up divesting from their consulting arms, amid an inquest to avoid a recurrence of the events. As pressure continues to mount on the top figures of the auditing and advisory industry, the dominance of the Big Four in the accounting arena will now be the subject of a landmark competition probe. Deloitte, EY, KPMG and PwC are set to be scrutinised by the Competition & Markets Authority, following a litany of auditing scandals. 

Now, as the Big Four looks to take control of the narrative, which has become increasingly hostile toward its dominance of the UK auditing and advisory scene, an exclusive report from Sky News has revealed that KPMG has informed its 625 UK Partners it will now phase out all but essential non-audit services for the 90 FTSE-350 companies which it serves as auditor. A briefing note circulated by Bill Michael, KPMG's UK Chairman, confirmed that the move is part of a proactive stance from KPMG to head off "even the perception of a possible conflict”, by discontinuing the provision of non-audit services such as consulting work for the FTSE-350 companies in question.

Michael’s note reportedly added, "We have also been clear that this would be most impactful if implemented within a regulatory framework for all FTSE350 companies and we will be discussing this point with the CMA in due course."

The news comes after the Financial Reporting Council took the unprecedented step of monitoring a quarter of KPMG UK’s auditing work in the present financial year, following what it called an “unacceptable deterioration” in the firm’s accounting roles. That news triggered further calls for the forcible break-up of the Big Four’s British operations.

Taking this into consideration, however, Michael’s note also cautioned against this. He warned, “Multidisciplinary firms are the only realistic model capable of carrying out complex, multi-faceted, global audits… This will continue to be the case as the business landscape grows in complexity and audits come under even more scrutiny."