KPMG to cut global ties with law firms

Big accounting firm KPMG has said that it would stop providing legal services, and blamed United States corporate governance rules for its far-reaching decision.

The US Sarbanes-Oxley Act bans accounting firms from supplying legal services to audit clients. KPMG said that the legislation was a key reason behind the plans to cut its ties to legal practices in 60 countries.

KPMG is the first of the big four accounting firms to drop legal services from its range of multi-disciplinary capabilities. The decision will be welcomed by big law firms, which have been worried about losing business.

Among the other big accounting firms, Deloitte said that it was reviewing its relations with affiliated legal practices because of the changing regulations.

PricewaterhouseCoopers (PwC) said that a small number of its affiliated legal practices had cut their ties because of local regulatory requirements. Ernst & Young refused to comment.

Mr Mike Rake, global chairman of KPMG, said that the firm would remain a multi-disciplinary group focused on audit, tax and advisory services. But he said that the new business environment had required a different approach to legal services.

'We will continue to lead the industry in helping to restore public confidence in the accounting profession and the capital markets,' he said.

During the 1990s, accounting firms developed into multi-disciplinary businesses and were rebranded as professional services firms.

But in the past three years, Ernst & Young, KPMG and PwC have spun off their main consulting operations as governments and regulators were concerned about possible conflicts of interest inside accounting firms.

The US Securities and Exchange Commission (SEC), which is writing auditor independence rules, says an accountant is deemed to lack independence when giving legal services to audit clients.

Although KPMG does not have an affiliated legal practice in the US, the SEC rules affect foreign companies with US share listings as well as US corporates.

Companies outside the scope of the US rules are also increasingly unwilling to buy legal services from auditors.

KLegal International, KPMG's global legal network, was only completed in 2000, but Mr Robert Glennie, its chief executive, said that it had no choice but to cut ties.

'We have been coming across situations where we have not been able to help clients because of the new regulatory regime,' he said.

The legal practices within KLegal International are discussing the formation of an independent group that would be able to sell legal services to KPMG's audit clients.

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