PracticeAuditAudit firm division should be explored

Audit firm division should be explored

Conflicts of interest could be avoided if firms are split, inquiry told

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

Further Reading:

Lords enquiry: accounting fuelled banking crisis

Activist investor to face Lords audit enquiry

Related Articles

The future of the audit industry: From masses of data, to meaning

Audit The future of the audit industry: From masses of data, to meaning

1y Acccountancy Age
Deloitte scoops GSK 'mega audit' from PwC

Audit Deloitte scoops GSK 'mega audit' from PwC

1y Kevin Reed, Writer
Friday Afternoon Live: HMRC complaints rise; Deloitte scoops big audits; and corporate reporting woes

Audit Friday Afternoon Live: HMRC complaints rise; Deloitte scoops big audits; and corporate reporting woes

1y Kevin Reed, Writer
BDO appointed new auditor of Game Digital as Deloitte ditched

Audit BDO appointed new auditor of Game Digital as Deloitte ditched

1y Stephanie Wix, Writer
BDO's 'agility' makes it well placed to succeed - Eagland

Accounting Firms BDO's 'agility' makes it well placed to succeed - Eagland

1y Kevin Reed, Writer
Friday Afternoon Live: Accountants in government; audit market concentration; Top 40 Networks

Audit Friday Afternoon Live: Accountants in government; audit market concentration; Top 40 Networks

1y Kevin Reed, Writer
The impact of Brexit on EU audit reform

Audit The impact of Brexit on EU audit reform

1y Richard Crump, Writer
Audit Reform: The Conflict Minefield

Audit Audit Reform: The Conflict Minefield

1y James Roberts, BDO