Big Four audit and accounting firms in the U.K. are selling less nonaudit work to their audit clients, a finding that comes as some lawmakers are recommending firms separate their audit and consulting businesses to avoid conflicts of interest.
Deloitte LLP, Ernst & Young LLP, KPMG LLP and PricewaterhouseCoopers LLP—the U.K.’s biggest professional services firms—in 2018 generated 8.5% of their total fee income from offering nonaudit work such as consulting to their audit clients.
That is a steep decline from 2008 when these kinds of services brought in 17% of total fee income, according to data released Monday by the U.K. Financial Reporting Council, the country’s accounting and audit watchdog.
The Big Four—which now audit all companies listed in the U.K.’s main benchmark stock index, the FTSE 100—in 2018 generated a total of £930 million ($1.2 billion) from selling nonaudit services to audit clients, down from £1.015 billion in 2017 and from £1.194 billion in 2008.
Regulators have ramped up scrutiny on the sector amid concerns over the quality of audits provided by U.K. audit firms following several high-profile corporate collapses. Regulators and lawmakers are concerned that conflicts of interest could arise if an audit firm sells nonaudit services to its audit clients.
U.K. regulators, including the Competition and Markets Authority, in recent months have proposed an operational split between accounting firms’ audit and consulting business. Meanwhile, a parliamentary committee is suggesting new legislation that would introduce a structural separation between audit and consulting businesses.
The U.K. government has yet to respond to the recommendations.
Deloitte, Ernst & Young, PwC and KPMG didn’t immediately respond to a request for comment.
KPMG recently confirmed it would move about 750 U.K. employees from its advisory business to its audit division in preparation for potential regulatory changes.
PwC in September said it is considering changes to how its U.K. partners are being remunerated to avoid potential conflicts of interest.
Sourced from The Wall street Journal - written by Nina Trentmann