The news of another possible breach of rules at KPMG justifies calls for reform © REUTERS

Revelations of a fresh internal probe into a possible breach of independence rules at KPMG have a weary familiarity. Auditors, like bankers, lawyers and plenty of other professional services, tread a fine line between keeping clients (and hence their own bottom lines) sweet and avoiding the sort of over-reach that rings regulatory alarm bells.

Accounting scandals at felled British companies from café Patisserie Valerie to outsourcer Carillion have soured public perceptions of the industry. Regulatory ramp up, however, has been much more modest. The Financial Reporting Council, the watchdog, has so far committed to a £5.5m hike to its voluntary levy on companies and plans to add another 100 staff.

Critics, baying for blood from the Big Four, want more meaningful reform. The latest news from KPMG vindicates that call. The FRC has been glacially slow to take action and a soft touch when it comes to handing out penalties. Probes are still under way at KPMG into an audit of Rolls-Royce Group in the year to end-2010. Fines, when they do come, are often pared back: see the 20 per cent reduction on a settlement into the debacle that was the Co-operative Bank, which nearly collapsed when a £1.5bn capital shortfall came to light.

The move away from using audit as a loss leader for consulting — albeit with restrictions on immediate conflicts of interest — is more a drift than a switch. In 2018 the Big Four gleaned up to half of revenues from non-audit services as a portion of total audit revenues in 2018, according to data collated by the FRC. KPMG has since pushed its own ratio below one-third for last year, based on its latest transparency report.

The beefed-up FRC is acknowledgment of its failures to date, and addresses some of the tougher proposals put forward by Sir John Kingman in 2018. As the slew of misdemeanours trickling out of the Big Four shows, a steely hand is needed more than ever.

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