The UK is contemplating making the Big 4 accounting firms spin off their auditing arms to end the potential for conflicts of interest.  This is a very important issue globally as investors rely on the accuracy of the information disclosed to them when they assess the risk of any investment.

The Institute for Financial Transparency strongly supports requiring the spinoff of the auditing arms.  There is no benefit for investors from having auditors with conflicts of interest.  There is only downside.

Critics of the big four’s dominance have pointed to potential conflicts of interest arising from the rapid growth of their consulting divisions. They argue that an accountancy firm might have a biased approach to a client’s audit if it also has a lucrative consultancy contract with the company, advising it in areas such as tax.

“If you’re in the senior leadership of the firm, I think you need to be focusing heavily on your public interest responsibility, which is the audit bit,” Haddrill said. “[But] so much of your attention is bound to be drawn to the most profitable and the fastest-growing part of your business, which is not the public interest part.”

The sooner the spinoffs of the auditing arms, the better.