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BDO considers practice break-up

The UK’s fifth biggest advisory firm is considering splitting its audit business from the rest of its services following an inquiry by the Business, Energy and Industrial Strategy (BEIS) Committee into the Big Four firms.

The BEIS recommending the firms split audit and non-audit services and a “structural break-up” to tackle the lack of competition and conflicts of interest,

BDO said it was planning for a variety of outcomes including moving its audit practice to a separate subsidiary within its group. The plans were said to be at an “early stage” which required a detailed consultation.

Scott Knight, head of audit at BDO, said: “The BEIS Select Committee is right to identify a lack of competition, quality and trust in our audit market. Above all else, we believe a market cap should be introduced to limit the number of FTSE 350 audits that any single firm can take on, alongside improved oversight from a beefed up regulator.

“While the committee’s recommended operational split of the Big Four doesn’t apply to us, separating out an audit business which is focussed on quality, sufficiently profitable to attract and retain talent, and has the money to invest in technology and other necessary innovations is an interesting business problem. We are adding this to our scenario planning process.”

He added: “One potential route would be separating the firm’s audit arm into a subsidiary LLP with the members being audit partners alone. This isn’t a proven path, but if the audit profession is genuinely committed to addressing the concerns which have been raised by four high-profile industry reviews, it must demonstrate this with bold action.”

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