The pressure for a restructuring of the Big Four accounting firms’ U.K. operations intensified as lawmakers called for a complete breakup amid a series of high-profile audit failures.

The business, energy and industrial strategy (BEIS) committee of Parliament said in a report that a “full structural breakup” of the Big Four would be more effective than other options in “tackling conflicts of interest” and providing the “professional skepticism” needed to deliver high-quality audits.

“We must not wait for the next corporate collapse,” committee chair Rachel Reeves said. “Government and regulators need to get on and legislate to deliver these reforms and ensure that audits deliver what businesses, investors, pension holders, and the public expect.”

The Confederation of British Industry, however, accused MPs of being “heavy-handed” while one of the Big Four, PwC, said a breakup would be counterproductive.

Rachel Reeves, Member of Parliament

“Arguing for ‘break-up’ sounds like action, but actually it will reduce quality, weaken resilience, and distract attention from more practical steps to ensure auditing keeps pace with society’s expectations.,” Hemione Hudson, PwCs head of assurance, said.

PwC, KMPG, Deloitte, and EY sign off on the accounts of 97% of the U.K.’s 350 largest listed companies. They have been under scrutiny since the collapse of government contractor Carillion, which had been audited by KPMG for 19 years.

As The Financial Times reports, the BEIS committee has taken a more extreme position than the Competition and Markets Authority, a government watchdog that called in December 2018 for an “operational” break-up that would force the Big Four to separate their audit staffS from the rest of their businesses.

“The Big Four’s dominance has fostered a precarious market which shuts out challengers and delivers audits which investors and the public cannot rely on,” she said. “Our report proposes a range of measures to boost competition, improve the audit product, and ensure that the U.K. continues to be a world leader in corporate governance.”

If the CMA opts for only operational separation, it should be reviewed after three years to see if it improved audit quality, the report said.

Photo: Chris McAndrew, via Wikimedia

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