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KPMG leads battle against French consultancy separation plans

KPMG has asked the British government to speak to the French government about a new proposal to make a legal separation of audit and consultancy. The plans would introduce a new financial security law to prevent accounting firms from providing consultancy services to their audit clients.

The Big Four firm claims that the planned legislation would undermine the EU’s efforts to create a single market in high quality business services.

The new proposals by the French, expected to be introduced in 2003, are a reaction to concerns over auditor independence being compromised, in light of business scandals in the US.

KPMG says it ‘believes that the French proposals are anti-competitive in that they will further restrict the choice available to large and global listed companies operating in France to those that do not have any international divisions or associated firms undertaking any non-audit work for that company anywhere in the world.’

The firm stressed that the new law has been partly driven by the country’s small accounting firms and their desire to restrict competition from the Big Four. The law might prevent audit firms from doing corporate finance, insolvency, legal and tax work for audit clients, as well as consulting services.

The restrictions could affect KPMG’s entire global network rather than just its French practice, and cover relationships with private companies as well as listed companies. The extra-territorial nature of the planned legislation means it could apply to foreign operations and subsidiaries of French companies.

France’s code of commerce already prohibits accounting firms from providing non audit work to its audit clients, but the rules have not been strictly enforced yet.

The Big Four firms are particularly worried about the impact of the French legislation on their income, as they rely heavily on providing non audit work to their audit clients.

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