Daily Management Review

UK watchdog demands that the Big Four separate audit from main business


The Financial Reporting Council (FRC) of the United Kingdom presented its new principles for the work of audit firms. The regulator requires the “Big Four” audit and consulting companies - KPMG, PwC, Deloitte and EY - to individualize the audit as a separate business. If the FRC requirements are met, this will be the biggest change in this area in several decades.

R/DV/RS via flickr
R/DV/RS via flickr
The reason for the development of new rules was several scandals, during which auditors were accused of poorly checking activities of certain companies. One of the largest cases was the situation around the British construction company Carillion in 2018 - then the audit companies were accused of overlooking the approaching collapse of the company. 

Also, last year, the FRC began an investigation of EY’s activities after the bankruptcy of Thomas Cook, audited by EY. In recent weeks, the question of how well the Big Four players audited was raised in connection with the situation with Wirecard: an audit showed that the business of a German fintech company was unprofitable for many years.

The FRC requires that the audit companies prepare and submit their proposals for separation of audit units into a separate business, and this process should be completed by 2024. The regulator believes that this should reduce the impact on the auditors from the rest of the company and improve audit practices.

source: ft.com