The decision is aimed at restoring public trust in the audit sector following a number of recent scandals, including the collapse of Carillion and BHS.
Sky News reported today that Bill Michael, KPMG’s UK chairman, told its 625 partners of the decision. The firm currently has 90 FTSE 250 companies listed as clients.
KPMG was singled out by the Financial Reporting Council this year over the “unacceptable” quality of its audits and was placed under greater scrutiny.
It is expected to be part of its set of recommendations sent to the Competition and Market Authority (CMA) audit study and the Sir John Kingman review, but it is understood the decision is taking effect immediately.
The submissions are due to be published and findings are expected to be known by the end of the year.
KPMG declined to comment, but it is believed it now expects its rivals to follow suit.
According to the FRC annual report, KPMG earned £221m in fee income carrying on non-audit work to audit clients. In total, it received £2.17bn in fee income.
KPMG has been fiercely criticised for its failure to spot problems at Carillion, which consequently collapsed.
KPMG was accused of being “complicit” in the company’s “questionable” accounting practices and “complacently signing off its directors’ increasingly fantastical figures” over its 19-year tenure as Carillion's auditor.
The firm was paid a total of £20.2m for its work on Carillion since 2008, with £16.8m coming from the company itself and £3.4m from government work.
PwC declined to say if it would be following KPMG’s decision, but said, “Scrutiny of the audit market has highlighted concerns around quality, independence and choice. We believe it’s important to look at these areas in a holistic way, with audit quality firmly at the heart of any reforms to the market. We are open to embracing change which serves the best interests of shareholders, companies and the market.
“We will work with the CMA and other stakeholders to do what is necessary to restore trust and confidence in audit, by supporting measures that address issues in the market. We appreciate that further commitments to limit non-audit services to audit clients could be necessary to promote confidence in the independence of audit firms, particularly for those companies in the listed market.
“As the CMA has noted, there are already measures in place to control the non-audit services that an audit firm can provide to a client (as part of the FRC’s Ethical Standard, which was revised in 2016). We look forward to understanding the CMA’s analysis of the effectiveness of these measures.”
Deloitte and EY have also been approached for comment.