In a string of business failures auditors have been criticised for failing to spot what is later seen as an 'inevitable' collapse. Accountancy firms stand accused of being more concerned with maintaining an on-going client relationship with the audit client and thus the ability to sell more lucrative consultancy services, than in calling the client to account. While this may well be more a perception than a reality, where consultancy services offered by the Big Four make up approximately 70% of their fee income it remains imperative for them to find a way of preserving both audit and consultancy service revenue, and avoid legislation that may see their businesses broken up.

It is potentially for this reason we have seen Deloitte and KPMG responding to the review by the Competition and Markets authority by voluntarily offering to ban the sale of additional service lines to their FTSE 350 audit clients. This will result in work worth millions being open to the market, providing a competitive boost which would seem good news to clients. However two consequences may arise, firstly the non-audit work may simply move to another big 4 rival, with the audit firm being compensated by receiving non-audit work from a rival. Secondly we might see the firms break up at a time of their choosing, spinning out the various consultancy elements to separate standalone ownership structures. Those with a long memory will recall that accountancy firms have done this before (e.g. Authur Anderson splitting from Anderson Consultancy later rebranded Accenture). Will we see the partners of the Big Four cashing in and seeing the sale of its non-audit businesses? Or thinking the unthinkable, spinning out its audit practice?

One area that is always ripe for spin out is corporate restructuring and insolvency. It is always the case that an audit client cannot be referred to the same firm's insolvency practitioners where a formal insolvency process is being made, as a result the insolvency work already needs to go to another firm. Many smaller accountancy practices have gone down the route of separating its insolvency arm from the main business and there have been rumours circulating in the press that KPMG rebuffed approaches by both PE funds and specialist rivals to see if they would be prepared to sell. While firms such as KPMG can still retain lucrative non-insolvency restructuring, including debt and equity raising services, some can see that the commercial imperative to sell is perhaps not great. If however the Big 4 come under further pressure to deal with the issue of conflict and lose non-audit work from larger clients perhaps a voluntary break up of its business will be more attractive.