KPMG’s audit chief has penned a strident defence of his firm’s controversial Rentokil service, arguing the arrangement was ethically sound and caters for the “unprecedented challenges” faced by businesses today.

Oliver Tant, KPMG’s UK head of audit, has sought to correct “misleading” comments about its much-discussed audit arrangement being used for FTSE 100 firm Rentokil Initial.

Controversy has centred on the potential mix of internal and external audit services the firm has offered, which has raised eyebrows across the audit industry in recent weeks.

Audit guidelines warn of two dangers when an external auditor takes on internal duties. The first concerns the potential for a company to audit its own internal work, while the second concerns auditors making management decisions.

Tant sees no issue with the arrangement and said it enhances the audit service. “This work does not replace, conflict with or undermine the independence of the external audit ­ it simply extends our understanding of the business and its controls and hence the breadth and depth of insight we can offer,” he said.

He believes the package responds to the “unprecedented challenges in this economic climate”.

It was Rentokil’s 31 July announcement that it would switch its external auditor
from industry heavyweight PricewaterhouseCoopers that first sparked debate. In its half-yearly result Rentokil said it could shave 30% off its audit costs with KPMG’s package which, it said, “integrated financial assurance process, extending external audit coverage to some work undertaken by internal audit”.

Tant said the arrangement did not merge internal and external audit functions. “The service is not about merging the external and internal audit functions. A company can continue to have its own internal audit function.”

What Tant does not address, however, is whether the arrangement can be used overseas. An ongoing criticism is that it would be prohibited in the US and could be challenged in France.

This issue prompted John Flaherty, Ernst & Young’s UK head of assurance, to say he would steer clear of mirroring the arrangement.

“The way they have packaged and described it has brought them closer to the line of what is acceptable and not acceptable… each of the firms needs to take its own view about where that line is,” he said last month.

Further reading

All their own work - Oliver Tant's defense of Rentokil role