UK Changes Course On Big Four Accounting Breakup

The U.K. may be changing course in its efforts to break up the Big Four accountancy firms after the Competition and Markets Authority (CMA) decided against such action late last year.

Reports in Bloomberg on Monday (April 1) said a U.K. Parliament committee has announced a possible forced breakup of the Big Four – PricewaterhouseCoopers, Deloitte, EY and KYMG – which account for more than 90 percent of U.K. audits for large businesses. The Business, Energy and Industrial Strategy Committee released a 100-page report on the matter, recommending that the auditing giants undergo a “full legal separation” of auditing and consultancy operations.

“We are not confident in relying solely on the integrity of auditors to do the right thing in the face of conflicting interest,” the report stated, according to Bloomberg. “For the big firms, audits seem too often to be the route to milking the cash cow of consultancy business.”

High-profile collapses of corporates in recent years, including the demise of former government contractor Carillion and, more recently, Patisserie Valerie’s fall, have led to concerns and criticism that accounting and auditing agencies are failing in their job to detect financial issues.

This is a departure from the CMA’s previous recommendations, issued in December, which suggested a Big Four breakup at an operational level, as Bloomberg said, “holding off on calls for a full structural breakup or a cap on an auditor’s market share.”

But according to the Parliamentary committee’s report, “the benefits of a separation are large, and in our judgment, worth incurring significant costs.”

The committee’s conclusion drew expected criticism. Reports said the Confederation of Business Industry, a U.K. business lobby group, slammed the recommendation as “heavy-handed.”

“The U.K.’s position as a stable, evidence-based country is already under threat,” the lobbyist’s Deputy Director Josh Hardie said in a statement. “So rushing to simplistic measures rather than following a clear, considered, long-term approach will damage our reputation further.”