The accountancy firm KPMG will stop providing non-audit services to big listed companies whose finances they are inspecting after coming under intense pressure over perceived conflicts of interest.
Bill Michael, KPMG’s UK chair, said the firm would stop providing non-audit services for FTSE 350 companies “to remove even the perception of a possible conflict”, in a memo to partners sent on Thursday. The firm declined to give an end date for the changes.
It will continue to offer often lucrative non-audit services, such as consultancy, to smaller UK-listed clients, as well as private firms of all sizes.
KPMG’s move comes amid calls for the break-up of the largest accountancy firms. There are currently five major ongoing inquiries into audits, after a slew of corporate scandals in which auditors failed to spot major problems in the finances of companies such as retailer BHS and construction giant Carillion. KPMG was heavily criticised for its audit of Carillion before its failure at the start of the year.
The firm and its big four rivals Deloitte, EY and PwC dominate the audit market for large firms in the UK. The big four carried out more than 95% of the audits for FTSE 350 firms last year, according to figures from the Financial Reporting Council.
KPMG currently earns less of its income from non-audit services than its rivals. In the year ending September 2017, it earned £79m in non-audit fees and £198m in audit.
The decision was criticised as a “high-profile gimmick” by Prem Sikka, professor of accounting and finance at the University of Sheffield, who is expected to publish a report on the sector commissioned by the shadow chancellor, John McDonnell, by the end of the year.
Sikka said a system in which auditors voluntarily split off non-audit functions for a small proportion of British companies is not good enough.
“Somebody has to police that system,” he said. “The lure of profits is just too strong.”
Andrew Tyrie, the former Conservative MP and Treasury select committee chair who has previously criticised auditors, is leading a separate investigation into audit firms for the Competition and Markets Authority (CMA). He is expected to call for major changes to the structure of the market.
In his memo KPMG’s chair said the firm would push for the CMA to adopt its plans to split audit and non-audit only for FTSE 350 firms.
Michael defended the “multidisciplinary” approach of large accountants, who often provide consulting services while they are mandated to provide robust oversight of firms’ finances.
KPMG declined to comment.