Corporate governance champion Mervyn King has
labelled proposals to outlaw audit firms from providing advisory
services a “disaster” that could impact upon audit quality.

King, the chairman of the International
Integrated Reporting Committee, is one of the most high profile
opponents to audit-only firms.

In an exclusive interview with The
, King said the separation of audit from advisory
services was the biggest issue facing the accounting profession

“I believe that you need that skill to be a
good auditor,” said King, a former judge of South Africa’s Supreme

“You need business judgement to be a good
auditor. [It’s important to have] that advisory knowledge at your
disposal, either from a colleague or having spent some time in the
advisory practice.”

King advocates accountants switching roles
between advisory and audit during their career because “it just
makes the auditor more skilful and the audit more complete and more

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EC Internal Markets Commissioner Michel
Barnier and US Public Company Accounting Oversight Board chairman
James Doty are proposing audit-only firms and mandatory audit firm
rotation among a raft of controversial reforms being debated on
both sides of the Atlantic.

This could have a major impact on how
professional services firms are structured. In particular, the
separation of audit and advisory threatens the livelihoods of four
largest accounting firms, PwC, Deloitte, Ernst & Young and
KPMG, who typically generate more than a third of their fees from
advisory services, often to audit clients.

Too much rotation

The EC would also like to introduce mandatory
firm rotation after nine years and mandatory re-tendering after
five years in a bid eradicate a perceived lack of independence
between auditors and clients.

King said rotating the external auditor every
nine years was a “crazy idea” that could lead to a knowledge

“Just from practical experience, I know that
it takes the external auditor about three years to understand the
business of a company,” he said.

“Then in the last two years they know they
have to move out and that instead of PwC being the auditor KPMG is
going to become the auditor then they are going to become
de-motivated – it is a ridiculous situation”.

*Mervyn King will feature as one of the Top 30 most
influential accountants in December’s edition of The