Big Four global auditors KPMG, Ernst & Young, Deloitte and PwC face massive shake-up
By Maliha Sheikh (Lahore)
London is giving headaches to big brothers of audit industry. According to ET, The “Big Four” global auditors could be broken up, leaving them susceptible to takeovers if radical European Union plans to boost competition go ahead, a UK auditing official said on Tuesday.
EU Internal Market Commissioner Michel Barnier is due to publish a draft law in November to curb what he sees as a conflict of interest when auditors check the books and supply lucrative consultancy services to the same customer.
Auditors, KPMG, Ernst & Young, Deloitte and PwC, check the books of nearly all big companies in the world.
A copy of Barnier’s draft law seen by Reuters News Agency proposes that auditors be banned from offering consultancy services to the companies they audit, or even banned from consulting altogether – a move that could force the firms to split their operations.
“Breaking up the Big Four audit firms would make them more susceptible to be taken over by emerging Chinese firms,” a UK audit official told ET on Tuesday on condition of anonymity due to the sensitivities involved.
The European Parliament, which will have the final say with EU states, gave the plans its broad backing this month.
Auditing industry officials estimate that 28-30 percent of global revenues come from statutory audits, with about 18 percent from non-audit services provided to the same audit client. This means that about half of total revenues is earned from providing consultancy services to clients which are not being audited as well.
Britain, as home to the Big Four’s European base, is likely to oppose some of Barnier’s more radical proposals though its Office of Fair Trading said in July a full blown competition probe into the sector is warranted.
I asked an industry expert in Pakistan if we will witness the same in Pakistan and non-audit services could not be offered by Big four in Pakistan. According to him, this is a matter of international practices and Pakistan simply follows what comes from above. So whatever is decided in Office of Fair Trading (OFT) in UK, other members in different countries, including Pakistan, will simply follow.
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[...] the recent reforms introduced by European Commission audit firms were barred to offer non-audit services under the same umbrella. Sine according to many experts, revenues from non-audit services near [...]