EY and PwC said they will follow KPMG by phasing out selling non-essential extra services to their FTSE 350 audit clients.
The chief executives of the two accountancy giants, half of the sector’s Big Four, informed MPs of their decision at a parliamentary hearing today, following months of intense criticism of Britain’s biggest bean counters.
Under current rules, auditors are allowed to sell extra services – typically consultancy, tax compliance and technological advice – to their clients, but total fees for additional services cannot make up more than 70 per cent of the audit fee itself.
Critics have said the extra fees present a conflict of interest – motivating accountants to avoid being frank with clients in order to protect lucrative additional revenue streams.
KPMG announced it would begin shedding audit extras in November, with its boss saying today the 12-month process was already underway. The chief of Deloitte, which has outlined a commitment to a similar move, said it would “wait to see what the total [audit reform] package agreed is”.
Members of the Business, Innovation and Industrial Strategy (Beis) Select Committee blasted Big Four chiefs at the hearing, with one describing the giants, who undertake 97 per cent of the FTSE 350’s audit contracts, as “a bit of a cartel”.
The Beis committee is currently undertaking a series of hearings on the future of audit, designed to follow up on the findings of two major reports, released last month, examining competition within the sector and probing its regulator.
Under questioning from committee chair Labour’s Rachel Reeves, only Kevin Ellis, PwC‘s UK chair, would say he was “happy” with the standard of audit provided by his firm. Deloitte’s David Sproul, EY’s Steve Varley and KPMG’s Bill Michael all said improvements were needed.
In a discussion with Ellis, Reeves highlighting the major fines – including a £6.5m penalty for failures in its audit of collapsed department store BHS – inflicted upon PwC in recent years. “What would it take for you to not be happy?” she asked.
After some cross-talk between the pair, Ellis conceded: “We can always improve.”