Risk Update

Concerning Conflicts — More on Unfolding Adjacent Industry (Accounting Audit v Consulting Conflicts Considerations & Changes)

From the continuing “it’s interesting to see how others are navigating conflicts” department, comes: “Conflict of interest rules cause headaches for Big Four auditors” —

  • “Deloitte, EY, KPMG and PwC must submit plans to their regulator this month for the ring fencing of their audit practices from their consulting arms.”
  • “The move is designed to eradicate conflicts deemed to have been so harmful to ensuring company bosses are held to account by auditors fearful of endangering lucrative consulting contracts by asking too many difficult questions.”
  • “A third of audits by the top seven firms failed to meet the watchdog’s standards in its latest industry review.”
  • “However, the audit divisions are not the only ones that have to manage awkward, and potentially untenable, conflicts of interest. Further splits 
are expected even if they are not forced by regulators.”
  • “‘It is an open secret that all these businesses are looking to restructure in some way because the conflict situation is just a complete nightmare,’ says one leading insolvency lawyer.”
  • “A firm that is asked to act as liquidator for a bust company faces a difficult balancing act, explains the boss of a leading accounting firm. Before accepting the appointment, a firm must ensure not only that it was not the collapsed company’s auditor, but that acting as liquidator would not place it in conflict with an existing client. A bust company could owe money to six or seven banks, he says.”
  • “Conflicts that stop parts of the Big Four taking on work are not the only gripe of partners in the divisions worst affected. Some feel they could also earn more money elsewhere.”
  • “London law firms have faced a similar threat, with some of their highest billing partners being poached by US-based firms which offer their star performers an ‘eat what you kill’ remuneration model, rather than the more socialised profit pool of more traditional firms.”