Leaked memo shows KPMG to ban non-audit work with clients

“Big Four” accountancy firm KPMG is to cease undertaking consulting work for FTSE 350 companies where it serves as auditor to avoid conflicts of interest following a string of scandals.

KPMG currently audits 90 FTSE 350 companies and its decision will put pressure on fellow auditing giants Deloitte, EY and PwC to follow suit in ending the practice of carrying out non-audit services for companies it audits.

The “big four” firms have come are under intense scrutiny following the collapse of construction firm Carillion and in a memo KPMG’s chairman said his firm’s move was to “remove even the perception of a possible conflict” of interest.

In the leaked memo to partners from KPMG chairman Bill Michael, he said the firm was “working towards” stopping non-audit work for FTSE 350 clients if it was also auditing them.

He said there continued to be a “significant commentary around the extent to which the provision by the auditor of non-audit services to listed companies creates a conflict of interest or perception of such”.

“However, to remove even the perception of a possible conflict, we are currently working towards discontinuing the provision of non-audit services (other than those closely related to the audit) to the FTSE 350 companies we audit.”

The decision may also be in anticipation of steps that may be taken by the industry watchdog which is currently looking at banning them from doing both auditing and non-audit work.

Earlier this year the Financial Reporting Council (FRC) said the auditing work of the “big four” firms - Deloitte, KPMG, E&Y and PwC - had deteriorated.

It said KMPG’s audits in particular had shown “an unacceptable deterioration”.

Today’s news also follows news of Stephen Haddrill’s decision to inform the board of the FRC that he intends to step down from his role as chief executive officer of the accountancy watchdog in late 2019.

The FRC is currently the subject to multiple inquiries, including the Sir John Kingman’s review, into its effectiveness and independence and it has come under scrutiny over the close relationship that its senior personnel share with the so-called “Big Four” accountancy firms.

Early responses to the Kingman review, published in August, highlighted widespread concerns that the FRC was too close to the industry it supervises and unwilling to issue serious penalties following wrongdoing in the sector.

“The roots of our profession lie in a fundamental need for trust, assurance and confidence in the capital markets,” added Mr Michael in the memo.

“The recent erosion of trust in our profession is also our problem to fix and I am determined that we take the right course of action to fix it.”