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Deloitte ringfences UK audit arm to meet tougher rules
[LONDON] Deloitte said on Friday its UK audit operations would have a standalone board from January to meet tougher regulatory requirements aimed at improving industry standards after a string of company failures.
Deloitte, KPMG, PwC and EY - the world's "Big Four" accounting firms - have been told by their regulator in Britain, the Financial Reporting Council (FRC), to submit plans by Oct 23 to ringfence their UK audit arms.
The aim of "operational separation" is to make the Big Four focus better on their work, be more challenging towards clients, and avoid conflicts of interest with consultancy work.
The FRC set out principles for underpinning ringfencing earlier this year, including the creation of an independent audit governance board (AGB).
The watchdog said on Friday it welcomed Deloitte as an "early adopter" of its principles.
The collapse of UK builder Carillion and retailer BHS led to a welter of proposed reforms aimed at improving book-checking standards, including replacing the FRC with a stronger watchdog.
"The AGB is central to Deloitte's new governance framework and a key step in the operational separation of our audit business from our wider firm," Richard Houston, senior partner and chief executive of Deloitte UK, said in a statement.
"We continue liaising with the FRC on the best ways to implement further changes to our governance and reporting structures." The FRC said on Friday it encouraged all the Big Four auditors to implement its principles for operational separation as soon as practicable.
KPMG said it set up a standalone audit board a year ago to create a more defined, easier to regulate business with a clear governance structure.
PwC said it continued to engage with the FRC on the principles of operational separation, and a decision last year to create a distinct audit practice meant it was already aligned with many of them.
EY had no immediate comment.