Company auditing needs a major rethink to restore trust in the profession and in corporate accounts after a series of scandals. On Tuesday morning, a cross-party group of UK members of parliament stepped up to the challenge with a courageous call for breaking up the big accounting firms to separate their consulting businesses from core auditing.
An earlier review by the Competition and Markets Authority had stopped short of demanding a full break-up, opting instead for a “Chinese wall” between audit and non-audit services. But the Business, Energy and Industrial Strategy Committee is right that we must go further.
Right now, high-margin consulting is the proverbial tail that wags the auditing dog — with many audit partners spending considerable time peddling management advice rather than scrutinising their clients’ books. Combining the watchdog and strategic-partner roles is at best distracting — and more insidiously, it has potentially corrupted the integrity of the audit, contributing to public distrust in a once-revered profession.