The news that KPMG has snapped up the audit of Rentokil Initial from rival PwC brings with it renewed concerns around the indepen­dence of firms providing additional services as well as opining on financial statements.

Under the arrangement KPMG would undertake all the statutory respon­si­bil­ities associated with an external audit, while also ‘delving deeper’ and offering advice on internal audit issues.

Not only that, but the audit will cost 30% less than what PwC was charging. I wonder if the company will end up losing more than they’ve saved if the market punishes them for the perception of having a less independent opinion. The director of the Profes­sional Oversight Board, the UK body respon­sible for monitoring the UK’s ethical standards, declined to state whether the deal would be inves­ti­gated. For their part, KPMG says they are confident they can address the threats to their independence.

Some observers say the arrangement would not be a viable option for companies with a dual listing in the US, owing to strict indepen­dence guide­lines or ‘bright lines’ set down by the Securities and Exchange Commission.

It may not help shave costs during a time of economic diffi­culty, but I firmly believe keeping internal audit service providers separate from external auditors is critical to preserving the indepen­dence required for a financial statement opinion and is just best practice in general. I would’ve thought 7 years after SOX we’d have this down pat.