How U.K. Audit Scandals Pushed Big Four Toward Split

A spate of scandals has put accounting firms in the U.K. on the back foot. The collapse of Carillion Plc, and subsequently Thomas Cook Group Plc, have been among cases that raised questions about auditing standards at the so-called Big Four firms. In response, Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers have agreed to separate their auditing and consulting departments by 2024 to avert possible conflicts of interest, a move that critics say doesn’t go far enough.

Bad enough that the U.K. government promised to reform the audit industry after a Parliamentary report two years ago into the collapse of Carillion, a major outsourcing company. The report panned Carillion’s accounting methods, KPMG’s soft audits and weak accounting regulation. Sidetracked by Brexit, a general election and the coronavirus pandemic, the government has yet to follow through. In the meantime, the accounting firms have taken action, along with the regulator, the Financial Reporting Council, partly to preempt government moves.