KPMG audit head defends controversial Rentokil role

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
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

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