UK Financial Reporting Council (FRC)
chief executive Stephen Haddrill has warned the regulator is
monitoring the Big Four’s consulting services growth.
Haddrill told a UK Treasury Committee hearing
this month that the FRC wants to see the majority of fees coming
from audit.
One committee member pointed out that before
the Arthur Andersen collapse that followed the Enron bankruptcy in
2001, fee income from consulting at the largest accounting firms
was 300 percent as much as fee income from audit. This raised
concerns about independence and concerns about firms slashing audit
fees in order to win audit work as a leader for consulting
work.
Changes in strategy
Following the Enron scandal, all of
the Big Four except Deloitte sold their consulting arms. However,
they are now heavily reinvesting in the lucrative consulting
market.
Haddrill said the FRC will watch the firms
closely to see whether the growth in consulting revenues encroaches
upon audit.
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By GlobalDataPricewaterhouseCoopers UK (PwC) head of audit
Richard Sexton told The Accountant that the firm doesn’t see an
issue with the firm providing consulting services to non-audit
clients.
He said PwC is the largest audit firm in the
UK market, but still only provides audit services to about 30
percent of listed companies.
“This means there is a very big chunk of the
market where we are not auditors and frankly we have skills that we
derive from both our audit work and other aspects which people in
the rest of the market wish to buy, and some of that is consulting
activity,” Sexton said.
“We don’t see an issue with that frankly, we
are very careful in relation to the services we provide to audit
clients. We believe that the ethical guidelines in the UK and
indeed regulatory guidelines around the world… are clear. We follow
those stringently; they are there to protect investor interests but
also to recognise that there are certain non-audit activities which
are best done by the auditors because of their knowledge, skills or
efficiency.”
Sexton also warned it is important to not
generalise about consulting as it is a vast and complicated
marketplace
