Following a report that KPMG, PriceWaterhouse Cooper, PwC, Ernest & Young, and Deloitte between them generated the sum of N7.53 billion as auditing fees from Nigeria’s most capitalized firms in 2019, the Financial Reporting Council (FRC) has issued an ultimatum to the world’s biggest audit firms to separate their audit services from their consulting services.
FRC’s Chief Executive Officer, Sir Jon Thompson while making the announcement said the FRC is committed to reforms on how corporate finances are reported. He also disclosed that other aspects of the reform package will be introduced over time.
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“Operational separation of audit practices is one element of the FRC’s strategy to improve the quality and effectiveness of corporate reporting and audit in the United Kingdom following the Kingman, CMA, and Brydon reviews. Today the FRC has delivered a major step in the reform of the audit sector by setting principles for operational separation of audit practices from the rest of the firm. The FRC remains fully committed to the broad suite of reform measures on corporate reporting and audit reform and will introduce further aspects of the reform package over time,” Thompson stated.
The deadline for compliance with this directive is June 2024.
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A statement published on the FRC website said this directive is ‘world-leading’. It also explained why it became imperative to separate the firms’ operations towards ensuring that they deliver the uttermost quality audit services for the good of public interest.
By the time the operational separation officially takes effect starting from June 2024, FRC said it would be expecting that audit practice governance would prioritize audit quality and protect auditors from influences from the rest of the firm that may try to divert their focus away from audit quality.
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Also that the total amount of profits distributed to the partners in the audit practice does not persistently exceed the contribution to profits of the audit practice while the culture of the audit practice prioritizes high-quality audits by encouraging ethical behavior, openness, teamwork, challenge, and professional skepticism/judgment.
