Splitting the Big Four into audit and financial departments should be investigated as a means to avoid conflicts of interest, a House of Lords inquiry into the audit industry has heard.
Dr Gunnar Niels, told the Economic Affair Committee the structural division of the big accounting firms had not been adequately explored as a way to guard against conflicts of interest.
“The option of structural separation has not been explored,” he told the inquiry.
The inquiry heard potential conflicts of interest can arise when accounting firms provide financial services for their audit clients. Since the 2002 Enron accounting firms have steadily decreased the amount they earn in non-audit services from their listed audit clients. However auditors continue to raise substantial non-audit fees for audit clients in the private sector. A report into Deloitte’s audit of collapsed British car-maker MG Rover found the firm’s ratio of non-audit to audit revenue was 15:1.
Stephen Kingsley, director with professional services firm FTI Consulting, questioned how auditors’ independence and commercial pressures could co-exist.
“If you take the view that public auditing is a public good then I find it difficult how you could have a culture of public service sitting side by side one of commercialism,” he said
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