Splitting audit and advisory functions could be key, says Richard Susskind
One Big Four player’s rumoured plans to overhaul its structural operations could spawn a new kind of “multidisciplinary beast” capable of swallowing up a large City law firm, Professor Richard Susskind has warned.
The Financial Times (£) reported last week that EY is considering splitting its audit and advisory functions in a “bold attempt” to escape possible conflicts of interest that have “dogged” the industry for years.
This, as the report explains, stems from the Big Four’s “perceived lack of independence in their auditing of company accounts because of the fees they also generate from consulting, tax and deal advisory work”.
If given the go-ahead, the structural overhaul would force its Big Four rivals — Deloitte, KPMG and PwC — to consider following suit, according to the newspaper.
But how will this impact the legal industry?
Well, according to Susskind, the move could enable accountancy giants to provide audit and legal advice to the same client. “And that is the great obstacle to the Big Four in their efforts to build legal businesses: they cannot act on any deal or dispute if audit clients’ interests are involved,” Susskind explains in a comment piece in The Times (£).
The profession’s foremost technology expert goes on to explain how the Big Four’s dominance in audit “has effectively blocked them from advising on significant cases of multiparty litigation or large deals, where parties or counterparties are often audit clients”.
Accepting Big Four bean counters are yet to “crack the legal market”, Susskind warns “all bets… are off” if they drop audit services.
“Unfettered by audit independence, they will be able to act on many more deals and disputes. Their massive consulting, tax, risk and advisory practices will be free to acquire large law firms, creating a new kind of multidisciplinary beast.”
The warning comes a month after KPMG announced plans to double the size of is UK legal, with the aim of recruiting a further 220 lawyers by the end of 2024.
All Big Four players have made inroads into the legal services market, with PwC being the first to receive alternative business structure status in January 2014. KPMG and EY followed suit in October and December 2014, respective, with Deloitte joining the foursome in June 2018.