BDO continues plans to split audit and advisory units

The accounting firm BDO is drawing up detailed plans to split its audit and non-audit activities in the UK into separate subsidiaries, after MEPs called for the split of the four largest firms.

BDO, the UK's fifth-largest accountant, said that its scenario planning was "launched" last week after a small committee asked the competition authority to look for a complete split of KPMG, EY, PwC and Deloitte.

"Yes [a split] That's the right thing to do, so we should definitely do it, and if the Big Four are going down that road, it will become the market standard and we can not help but be impacted, "said Scott Knight. , responsible for BDO audit.

BDO's projects would create an audit subsidiary of approximately 2,000 people and an unincorporated auditing unit of approximately 3,000 people, dominated by tax professionals. Both would continue to operate under the umbrella of a single British parent company. The plans were first reported by the Sunday Telegraph.

The audit division would be legally limited and "demonstrate that it is profitable in a sustainable manner and is not subsidized by other entities of the firm, and that it has levels of governance permitting to ensure that it is run by auditors, thus protecting the audit culture, "said Mr. Knight. .

The Competition and Markets Authority is expected to release its final proposals on the audit market in the coming weeks after a series of serious failures – such as Carillion and Patisserie Valerie – have focused a spotlight on the sector, including on lucrative consulting contracts with companies also audit clients.

In December, the CMA proposed an "operational" split of the Big Four, which would require it to establish a legal separation between its audit staff and the rest of its activities. But this week, the House of Commons Business, Energy and Industry Committee approved a more extreme and large-scale split.

Mr. Knight said that a split would take one or two years at BDO, but that similar dissolutions in "Big Four" companies would take "more than five years" to deal with the "divorce bill" , pension funds and settlements between groups. partners.

He added that a legal separation between the audit and consulting divisions would be "incredibly difficult to enforce" for large auditors working with large companies.

"If you have the audit of one of the largest companies, BP for example, only a small part of the audit will be conducted in the UK by an independent audit firm. The rest is done internationally and the rest of the world will not do it. expect to follow the advance of the United Kingdom.

"But I think the concerns raised about subsidization and cultural influence are really the major concerns of the public, and the accounting firms have to treat them instead of saying that it's not a problem" said Mr. Knight.

All four major auditors, as well as Grant Thornton and BDO, announced last year that they were considering a possible forced dissolution due to escalating controls following the bankruptcy of the Carillion subcontracting group, where the audited accounts one year before its liquidation with 1.5 billion pounds of debt offered little indication of the size of its problems.

The audits of BHS, which collapsed in 2016, and the Valerie pastry, which entered the administration this year after revealing widespread accounting fraud, were also sharply criticized.