The Financial Reporting Council (FRC), the regulatory body in charge of setting accounting standards, has directed the operations of four big accounting firms in the UK to split their auditing unit away from other business operations, a move analysts say would improve transparency.
The decision comes after various accounting lapses linked to one of the big four has led to the collapse of German payments provider Wirecard AG.
The industry’s regulator has given KPMG, PwC, Deloitte and EY until June 2024, to have separated their auditing divisions from the rest of their operations.
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Analysts say they foresee a situation where other countries in which these companies have operations might be mandated to follow suit, including Nigeria which is a member of the reporting body.
The move is commendable as it will improve transparency and promote independence in making accounting and auditing decisions,” said Emmanuel Faith, process analyst, at General Electric.
However, the only issue for them would be the challenge of organisational restructuring in terms of both human and financial resources,” Faith said.
Calls placed across to Deloitte and PWC seeking comments as to how the directives would impact on their operations were left unanswered.
Meanwhile, due to the lapses, the FRC said it had discussed new principles with accounting companies and had told them to set out plans to improve their profession by October this year.
They include a provision that auditors be protected from the influence that could come from the rest of the firm to reduce audit quality.
The FRC also said that the amount of profit distributed to the partners of any one company’s audit practice should not persistently exceed the profits of the division itself.
They called for a culture that promotes ethical behaviour and professional scepticism, as well as a duty to work in the public interest and the interests of shareholders.
