Big Four faces auditing probe

THE big four accountancy firms have been put on notice over possible conflicts of interest stemming from the growing overlap of internal and external audit services.<br /><br />The Financial Reporting Council (FRC) has launched a three-month inquiry after details of a deal between KPMG and Rentokil were made public.<br /><br />The controversial contract provides a &ldquo;deeper&rdquo; service than a standard, official audit and has raised concern in some quarters over the separation of audit processes.<br /><br />It is believed Rentokil has cut staff in favour of KPMG&rsquo;s own auditors, saving the company a net &pound;1m a year.<br /><br />In winning the contract, KPMG elbowed aside Rentokil&rsquo;s previous auditor PricewaterhouseCoopers (PwC), raising eyebrows across the industry about aggressive price-cutting and the blurring of traditional audit boundaries.<br /><br />The FRC is concerned that PwC, Deloitte and Ernst &amp;Young (E&amp;Y) are all providing &ldquo;similar if not identical&rdquo; packages to KPMG and is aware of a number of large companies demanding such services since learning of the Rentokil deal with KPMG.<br /><br />FRC chief executive Paul Boyle said an initial look at the process raised enough concern to call an inquiry.<br /><br />He said: &ldquo;We want to establish all the grey areas, how grey they are and work out where the line should be drawn.&rdquo;<br /><br />Boyle added: &ldquo;Audit firms and their clients should be aware of the steps being taken and may want to be cautious before entering into arrangements which stretch the internal/external audit boundary, not least because it could prove to be inconvenient and/or costly.&rdquo;<br /><br />PwC&rsquo;s head of Assurance, Richard Sexton, said in the current economic environment auditors were trying to provide clients efficiencies within independence and ethical guidelines.<br /><br />He said: &ldquo;I see no reason why these commercial solutions, where the external auditor works most effectively with other assurance providers, should not continue to flourish.&rdquo; <br /><br />KPMG declined to comment.