Regulators are investigating possible conflicts of interest at America’s biggest accounting firms, such as Deloitte, EY, KPMG and PwC.
The US Securities and Exchange Commission is looking into whether consulting and other non-audit services sold by the firms undermine their ability to conduct audits independently, sources confirmed to The Times. The investigation was first reported by The Wall Street Journal.
Two years ago the Big Four accounting firms in Britain began working with the Financial Reporting Council, the UK regulator, to draw up guidelines for the separation of audit and consulting units. The firms have been given a deadline of 2024 to separate their audit practices. The regulatory changes were prompted by scrutiny of audit quality after corporate failures including BHS, Carillion and Patisserie Valerie.
In 2019, PwC paid almost $8 million to settle claims by the commission of failings that included violating auditor independence rules by performing “prohibited non-audit services during an audit engagement, including exercising decision-making authority in the design and implementation of software relating to an audit client’s financial reporting, and engaging in management functions”.
“Auditors play a fundamental role in protecting the reliability and integrity of financial reporting and must ensure that non-audit services do not come at the cost of their independence on audits of public companies,” Anita Bandy, associate director of the SEC’s enforcement division, said when the settlement was announced.
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EY, KPMG and Deloitte previously have paid large settlement fees to the SEC over allegations of auditors breaching independence rules.
PwC, KPMG and EY declined to comment. Deloitte and the SEC did not respond to requests for comment.