Monday,
July 06, 2020 /11:48 AM / by Simon Foy of The Telegraph /
Header Image Credit: Ecographics

- It comes after a string of
corporate failures, including Carillion and BHS, led to calls for a
shake-up of the sector
PwC, Deloitte, KPMG and EY have been told by the
accounting watchdog to separate their auditing units from their consulting
businesses by June 2024.
The Financial Reporting Council said the objective of
the operational separation by the Big Four is to ensure that audit practices
are focused on delivery of high-quality audits in the public interest, and do
not rely on persistent cross subsidy from the rest of the firm.
The firms must outline their plans to implement all 22
of the FRC's principles by October 23, and have completed the measures by June
2024 at the latest.
The move represents the biggest shake-up of the audit
industry in decades and comes after a string of corporate failures, including
Carillion and BHS, which led to three government-backed reviews that
recommended wide scale reforms.
Regulators say that the companies' lucrative advisory
arms create a conflict with their auditing divisions as it encourages auditors
to be restrained in order to protect consulting opportunities.
Sir Jon Thompson, the FRC's cheief executive, said:
"Operational separation of audit practices is one element of the FRC's
strategy to improve the quality and effectiveness of corporate reporting and
audit in the United Kingdom following the Kingman, CMA and Brydon reviews.
"Today the FRC has delivered a major step in the
reform of the audit sector by setting principles for operational separation of
audit practices from the rest of the firm.
"The FRC remains fully committed to the broad
suite of reform measures on corporate reporting and audit reform and will
introduce further aspects of the reform package over time.'
Under the new principles, the finances of audit
divisions must be ringfenced with a separate profit and loss account and firms
will have to introduce an independent audit board to oversee the practice.
The Big Four now generate the majority of their revenues
from consultancy practices, with only around 20pc coming from audit.
Credit:
The post Auditors
told to separate consulting work first appeared in The Telegraph
on July 06, 2020

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