KPMG is set to become the first of the so-called Big Four to cease all non-audit work for FTSE 350 clients in the wake of Carillion.
The auditor will stop providing all but some essential non-audit services for the 90 FTSE 350 customers whose accounts it audits, it has told 625 UK partners in a letter leaked to Sky News.
UK chairman Bill Michael confirmed the move in an excerpt of the letter seen by City A.M., telling 625 UK partners that the company took the step “to remove even the perception of a possible conflict”.
"We have also been clear that this would be most impactful if implemented within a regulatory framework for all FTSE 350 companies and we will be discussing this point with the CMA in due course,” Michael said.
It is the first of the Big Four to make such a commitment following the collapse of Carillion last year, with KPMG, PwC, EY and Deloitte all tied in some way to the giant construction firm.
KPMG acted as external auditors to the ill-fated public sector contractor, which went bust in January laden with around £5bn in debts.
Currently regulations allow auditors to earn up to another 70 per cent of their audit fee by supplying non-audit fees to FTSE 350 clients, but after Carillion's collapse the Big Four are facing the possibility of stricter rules coming into force.
The Financial Reporting Council (FRC) is looking at whether it could take "further actions" to prevent auditors' independence being compromised, including a possible ban on consulting work for audit clients.
The sector watchdog is due to publish its report into Carillion in the new year, which could lay bare further issues and possible new punishments for the auditors involved.
The FRC in turn has been blasted as "toothless" by a parliamentary committee review into its regulation of the industry.
Meanwhile, the Competition and Markets Authority (CMA) is investigating the Big Four's dominance of audit for listed companies.
However, Michael said in his letter that a break-up of the Big Four must be avoided.
"Multidisciplinary firms are the only realistic model capable of carrying out complex, multi-faceted, global audits," he wrote.
"This will continue to be the case as the business landscape grows in complexity and audits come under even more scrutiny."
Michael also said regulators and stakeholders must shoulder some of the blame for an "erosion of trust" in big auditors, Sky News said.
It also pointed to possible future actions to improve the industry's image, based on discussions with regulators and industry bodies.
"Notwithstanding the significant implementation challenges, the measures we anticipate looking at include: market share limitations; shared audits; sharing of skills and resources; removing barriers to mid-tier expansion/reducing financial disincentives; and measures to strengthen the demand side, including the transparency of the tendering process and the position of audit committees," he wrote.