As far as global big business is concerned, the four big consultancy firms from the United Kingdom remain the gold standard for advisory and associated services, and that has been the case for decades. The four consultancy firms, known as the ‘big four’, are Ernst & Young, PwC, KPMG and Deloitte and they are known to provide big companies with a range of services that make the jobs of managers easier. However, a committee of MPs in the UK believes that it is a bit beyond the pale for those firms to offer advisory services to companies and then auditing their books as well. The committee believes that the auditing business and the non-audit functions should be two separate entities and needless to say, much of it has probably to do with potential conflict of interest. The companies are currently being reviewed by the Competition and Markets Authority (CMA), and it is believed that the regulatory body is all set to suggest a split of the two lines of businesses.
The CMA’s recommendations are going to be broad-based and include a range of recommendations that are supposed to make the whole thing a lot more transparent. In addition to the split, it states that auditors will have far more independence if this happens and when it comes to working on an audit, a big four firm should work in conjunction with a firm outside the big four. Those recommendations have now been endorsed by the Business, Energy and Industrial Strategy (BEIS) Committee, which is made up of British Members of Parliament and much of that has to do with conflict of interest issues.
The chairman of the BEIS, Rachel Reeves stated, “For the big firms, audits seem too often to be the route to milking the cash-cow of consultancy business. The client relationship, and the conflicts of interest which abound undermine the professional scepticism needed to deliver reliable high-quality audits.”
However, the recommendations were not met with widespread fanfare as one might expect. The head of the Institute of Chartered Accountants in England and Wales (ICAEW), Michael Izza stated that the idea of breaking up these firms could prove to be a counterproductive idea. He said, “This could both drive out incumbents and discourage new entrants, and it would be unfortunate if an attempt to guarantee the independence of audit firms ended up undermining the resilience of the audit market.”