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Sunday, 18 October 2020

Does this conflict of interest explain the long history of auditing scandals at the Big Four accountancy firms?

Does this conflict of interest explain the long history of auditing scandals at the Big Four accountancy firms? A string of scandals and auditing failures at KPMG, Deloitte, PwC and EY — AKA the “Big Four” accountancy firms — has prompted a UK financial watchdog to finally close a regulatory flaw that may be tempting firms to overlook certain indiscrepancies in their clients’ accounts, CNBC says (watch, runtime: 07:54). While stopping short of ordering a full break-up of the companies, the UK regulator has told them to separate their auditing arms from their other units by the end of 2024.

How does this solve the problem? Many accountancy firms offer their clients both auditing and consultancy services. Current rules allow them to begin consultancy work with the company immediately after an auditing contract ends, making it less likely to challenge a client if it threatens future lucrative contracts. The big four told CNBC that they have since taken steps to enhance audit governance and separate operations.

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