Big Four’s offshore audit model draws scrutiny from UK regulator

The UK accounting watchdog has raised concerns implicit the 'Big Four' companies' increasing usage of offshore teams successful audit work, informing that overseas unit are progressively being utilized for tasks requiring greater judgement, reported the Financial Times (FT).

In its yearly prime study published connected 22 July, the Financial Reporting Council (FRC) said companies were making wider usage of offshore unit successful UK audits done "extended squad models".

It said this marked a displacement from the long-standing signifier of utilizing overseas teams chiefly for regular investigating and administrative support.

Instead, the regulator said immoderate offshore teams were present taking connected enactment involving "professional judgement".

The exemplary has been developed implicit much than a decennary by Deloitte, EY, KPMG and PricewaterhouseCoopers (PwC), peculiarly done ample operations successful India.

Companies person utilized these centres to chopped costs, entree trained unit and supply enactment crossed clip zones.

Mid-tier operators person besides moved successful the aforesaid absorption arsenic the UK marketplace for qualified accountants has go much constrained.

KPMG UK's latest transparency study showed that astir a 4th of unit successful its audit signifier are based offshore.

Two auditors astatine Big Four companies told the FT they had seen rising dependence connected offshore teams and had concerns astir the prime of immoderate of the enactment delivered.

The FRC said companies needed to "future-proof" themselves against the risks linked to offshoring.

It added that it would show however the largest operators negociate their "extended squad models" implicit the adjacent year.

The study besides highlighted concerns astir the quality of UK companies to oversee activities carried retired elsewhere successful their planetary networks.

Most large accounting practices run arsenic networks of nationalist partnerships, with section companies separately owned and managed, and a planetary assemblage providing wide coordination.

The FRC said PwC's UK concern had identified a "small number" of cases wherever overseas subordinate companies carried retired non-audit enactment for audit clients without securing the required UK approvals.

The study said PwC was undertaking a elaborate interior reappraisal to cheque whether determination had been immoderate further breaches.

Under UK rules, companies are prohibited from charging non-audit fees to audit clients that transcend 70% of the audit fee.

These services tin see consultancy and taxation advice.

The FRC said it would prioritise reviewing PwC's arrangements for approving non-audit services provided by web companies.

It said this would beryllium pursued done "targeted" supervisory conversations.