London (CNN Business)The UK accounting watchdog has given Deloitte, EY, KPMG and PwC four years to split their audit and consulting businesses in an effort to improve corporate reporting following a string of high-profile accounting scandals.
The Financial Reporting Council said in a statement Monday that the Big 4 firms have until October 23 to submit a plan for implementing "operational separation," which will need to be completed by June 2024.
The move is meant to ensure that audit practices are focused on "delivery of high-quality audits in the public interest," and do not depend on financial support from the rest of the firm, the FRC said. The guidelines require that audit partners are paid in line with the profits of their practice, which will have its own governance structure and profit and loss accounts.
The news comes just weeks after Germany's Wirecard (WCAGY) filed for insolvency following the discovery of a $2 billion hole in its accounts. The scandal has raised questions over how the payments company's auditor, EY, could have missed the accounting irregularities for so long and led to fresh scrutiny of the sector. Investors rely on auditors for assurance that a company's accounts provide a true reflection of its earnings.