KPMG's confidence: Regulation will never force audit split

REGULATION will never force KPMG to split its audit and consultancy service provision, according to international chairman Michael Andrew.

Andrew also used fighting words to dismiss the European Commission’s joint audit proposal and attacked the draft reform paper for “creating an environment of uncertainty”.

He told the Financial Times, “We will be a multi-disciplinary firm no matter what the regulatory environment will be,” and said “second-tier firms … simply don’t have the skills or the market expertise” to audit global banks.

Apparently determined to further aggravate his smaller peers, Andrew (left) said some are “quite lazy” when it comes to investing in their business, adding: “Can you imagine a second-tier firm auditing a global bank at a time when there is already a lack of confidence in the marketplace?”

The mid-tier, unsurprisingly, can.

RSM Tenon’s Andy Raynor recently told Accountancy Age joint audits would be “best and most palatable” for clients, saying teaming up would provide a “fresh pair of eyes” and dismissing fears of lower-quality audits.

“The issue here is efficient management. If joint audits are done properly, there is no greater likelihood of problems than in an audit carried out by one firm across multiple offices,” he concluded.

It is unclear how Andrew plans to brush aside the Commission’s diktats. A threshold for splitting audit and non-audit services would allow firms to rake in up to €1.5bn (£1.3bn) a year in major audit fees, and the KPMG boss might view this threshold as his get-out-of jail card.

The fighting words could also be testament to Big Four confidence that the proposals in their current form will never enter into law.

Experts agree that, while radical, the leaked draft reform paper is far from finalised, and the Council of Ministers and European Parliament stand between it and EU-wide adoption.

PwC’s Richard Sexton said it is “frankly premature” to predict the outcome of Brussels’ deliberations, but agreed the value of multi-disciplinary firms is “way underestimated”.

Andrew did not go into detail on how he hopes the dodge the regulatory bullet, and a UK spokesman was reluctant to speculate. “This statement indicates our intention and our priority to remain a multi-disciplinary firm,” he said.

The spokesman said it would be “premature to be more specific” on Andrew’s thinking. It was not, apparently, premature for the global boss to make the bold statement in the first place.