KPMG acts to avoid "conflicts of interest" in non-audit work

Big Four KPMG accountant will stop performing non-audit activities for FTSE 350 companies that have hired the company to verify their accounts after being involved in a series of accounting scandals.

Bill Michael, president of KPMG, outlined a plan in a reminder to the partners to gradually eliminate all non-audit services deemed non-essential for auditing customers to "also remove the perception of a possible conflict [of interest]"According to a person familiar with the issue, this includes work such as consulting on IT projects.

The move comes amid growing demands for Big Four accounting firms that dominate the UK accounting market by £ 12.6 billion. The UK Accounting Supervisory Body, the Financial Reporting Council, at the beginning of this year criticized KPMG for criticism by stating that the quality of its audit work had deteriorated to a "level" unacceptable".

KPMG's audit team has been involved in major scandals, including its work for the controversial Gupta family in South Africa, the audit of the failed government outsourcer Carillion and the work for the Quindell insurance technology group, for which it is been fined for improper conduct.

The company has not detected any company that has failed in its audit work for these companies due to conflicts of interest related to other work they were doing for the companies.

KPMG declined to comment on Michael's note, which was reported for the first time by Sky News.

Investors have long questioned whether Big Four accountants could make financial mistakes to their customers in order to protect the most profitable advisory fees they can earn from large companies.

KPMG, the external auditor of Carillion over the past 19 years, has earned an additional £ 157,000 from the company in 2017, working on a potential rights issue, according to documents submitted by the company to the government in February.

The other four large companies benefited from a combination of audit and non-audit activities. KPMG, EY, Deloitte and PwC generate on average 10 percent of the commission income for this work, according to a report by the FRC.

Deloitte, Carillion's internal auditor during the same period, charged £ 54,000 in 2015 to handle a data breach and £ 554,000 in 2015-2017 to explore the market potential of a new product.

However, the data suggest that accountants who dominate the UK audit market of £ 12.6 billion have moved away from providing non-audit services to companies whose accounts they control.

Some prominent figures in the accounting sector have raised concerns, both publicly and privately, that defining what constitutes a non-audit work for a client is more an art than a science, while some companies can express their opinions in a manner too aggressive.

BDO's chief auditor Scott Knight told the Financial Times in April that there were too many "gray areas" around it.

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