• Register
Return to: Home > News > Regulation > Mervyn King speaks out against audit only firm proposals

Mervyn King speaks out against audit only firm proposals

Corporate governance champion Mervyn King has labelled proposals to outlaw audit firms from providing advisory services a “disaster” that could have an effect on audit quality.

King, the chairman of the International Integrated Reporting Committee, is one of the most high profile opponents to audit-only firms.

In an exclusive interview, King told The Accountant the separation of audit from advisory services was the biggest issue facing the accounting profession today.

“I believe that you need that skill to be a good auditor,” King said. “You need business judgement to be a good auditor. [It’s important to have] that advisory knowledge at your disposal, either from a colleague or having spent some time in the advisory practice.”

King advocates accountants switching roles between advisory and audit during their career because “it just makes the auditor more skilful and the audit more complete and more informed”.

EC Internal Markets Commissioner Michel Barnier and US Public Company Accounting Oversight Board chairman James Doty are separately proposing audit-only firms and mandatory audit firm rotation among a raft of controversial reforms on both sides of the Atlantic.

This could have a major impact on how professional services firms are structured. In particular, the separation of audit and advisory threatens the livelihoods of four largest accounting firms, PwC, Deloitte, Ernst & Young and KPMG, who typically generate more than a third of their fees from advisory services, often to audit clients.

The EC would also like to introduce mandatory firm rotation after nine years and mandatory re-tendering after five years in a bid eradicate a perceived lack of independence between auditors and clients.

King said rotating the external auditor every nine years was a “crazy idea” that could lead to a knowledge drain.

“Just from practical experience, I know that it takes the external auditor about three years to understand the business of a company,” he said.

“Then in the last two years they know they have to move out and that instead of PwC being the auditor KPMG is going to become the auditor then they are going to become de-motivated – it is a ridiculous situation”.

King said an example of why mixing audit and advisory skills is important is the role accountants can play in helping corporates change their mindsets about integrated reporting. He said the knowledge an audit firm has about a company makes them ideally placed to also advise on how integrated reporting can be beneficial.

*Mervy King will feature as one of the Top 30 most influential people in accounting in December's edition of The Accountant.


Top Content

    ARGA team, assemble!

    The new top team has been named that will see in root-and-branch reform at the Financial Reporting Council (FRC) as it transforms into the Audit, Reporting and Governance Authority (ARGA). Will the new duo be as dynamic as some are hoping? Robin Amlôt reports.

    read more

    FASB: a quest for simpler standards

    FASB chair Russell Golden addressed the IMA 2019 Annual Conference and Expo at the Sheraton San Diego Hotel and Marina, California, on 18 June. IMA immediate former chair-emeritus Alex Eng acted as moderator. Joe Pickard reports.

    read more

    The future of audit, and how to get there

    Two recent reports peer into the future of the audit profession. One analyses what an audit should offer, while the other looks at how the audit process will be carried out. Robin Amlôt takes a closer look at both.

    read more

    EFAA elects new president, focuses on digital future

    EFAA’s new president, Salvador Marin, outlined his key priorities for the next two years at the organisation’s 2019 annual general meeting, while outgoing president Bodo Richardt offered advice. Robin Amlôt reports.

    read more


    As the Coronavirus (COVID-19) continues to spread across the world, the International Accounting Bulletin and The Accountant will be collating all the latest news and updates from the profession on the pandemic’s impact.

    read more
Privacy Policy

We have updated our privacy policy. In the latest update it explains what cookies are and how we use them on our site. To learn more about cookies and their benefits, please view our privacy policy. Please be aware that parts of this site will not function correctly if you disable cookies. By continuing to use this site, you consent to our use of cookies in accordance with our privacy policy unless you have disabled them.