LONDON, Nov 8 (Reuters) – KPMG will phase out advisory work for its British accounting clients, marking a first for the “Big Four” firms trying to head off a possible break-up.
The Competition and Markets Authority (CMA) is under pressure to consider separating out the audit and non-audit operations of KPMG, EY, PwC and Deloitte to make it easier for smaller rivals to expand and increase customer choice.
The Big Four check the books of nearly all of Britain’s top 350 listed companies, while at the same time earning millions of pounds in fees for non-audit work. Lawmakers say this raises potential conflicts of interest as they are less likely to challenge audit customers for fear of losing lucrative business.
Bill Michael, head of KPMG in Britain, told partners in a note on Thursday that it will phase out non-audit work for top audit customers, a step that will cut fees over time.
“We will be discussing this point with the CMA in due course,” KPMG’s Michael said.
Non-audit work that affects audits would continue.
KPMG audits 91 of the top 350 firms, earning 198 million pounds in audit and 79 million pounds in non-audit fees, figures from the Financial Reporting Council show.
Lawmakers want auditors to spell out more clearly a company’s prospects as a going concern.
Michael said KPMG would seek to have all FTSE350 firms adopt “graduated findings”, allowing the auditor to add more comments about a company’s performance beyond the required minimum.
“Our intention is that graduated findings should become a market-wide practice,” Michael said.
The CMA is due to complete a fast-track review of Britain’s audit sector by the end of the year. This was prompted by lawmakers looking into the collapse of construction company Carillion, which KPMG audited, and failures like retailer BHS.
The watchdog could ask for specific undertakings, such as limiting the number of FTSE350 clients, or push ahead with an in-depth probe if it felt more radical solutions were needed.
Deloitte, PwC and EY had no immediate comment on whether they would mirror KPMG’s decision on UK non-audit work.
Reporting by Huw Jones
Editing by Alexander Smith