Let’s be blunt: there is no defence for this. It is flagrantly wrong. Internal audit is a management function. Holding that post and being external auditor has to mean you are in flagrant breach of all independence rules.

But what do KPMG care? They have only one ethical yardstick - as has been proved time and again, which is the profit they make from a deal.

This one makes them profit. So they’ll do it.

The answer is very obvious: strip their audit licence. It is clear they ae not fit and proper persons to act as auditors as they have proven they cannot identify a confluct of interest.

And another favourite accounting gob of ours, Francine McKenna was similarly underwhelmed:

In fact, I reported in February that the audit firms were rolling their internal audit practices back into the external audit/assurance practices. No more pretending to be true “strategic” consulting/advisory teams.  This is certainly more efficient and cost effective for the firms, especially if they can use the same staff for both external and internal audit engagements.

If you thought the discussion was pure rhetoric, you were mistaken. KPMG (and PwC who also proposed on Rentokil but lost) has now rationalized, rhetoricized, and revisited the best practice based restrictions for their new client Rentokil. Rentokil is not listed on a US exchange and, therefore, not subject to the Sarbanes-Oxley restrictions.  The UK, where Rentokil is listed, has a gentleman’s agreement with regard to auditor independence for non-audit services.

Given the pressures on costs and the longstanding ties some finance, audit, and accounting executives have with the accounting firms, it is not surprising that the weakening of the independence commitment may come from the companies themselves.  What’s the downside for them?  The potential for scrutiny by corporate governance experts and journalists?  You can’t argue with a recession.  And in the event of an accounting scandal or restatement, plaintiff’s lawyers will have an uphill battle to penetrate the impenetrable auditor liability shields and caps.

I would hate to think, as Dennis Howlett has suggested, that this could become another lame excuse for repealing SOx/general deregulation of audit firms under the threat  of companies decamping to more hospitable climates?

So, the latest report from the Audit Inspection Unit on its activities and findings for last year will probably make some uncomfortable reading for them both. On page 11, it notes  (emphasis added):

Following the announcement by Rentokil plc that its external auditor would be undertaking some work previously undertaken by internal audit, the AIU met the firm concerned and representatives from the company to understand better the nature of the services to be provided. Based on these discussions and the evidence provided, it appeared to the AIU that these services were more in the nature of an extended audit rather than traditional internal audit. The AIU identified potential threats to independence from these services and asked the firm to explain the safeguards that would be established to maintain auditor independence.

That's a pretty strong endorsement of the KPMG/Rentokil arrangement, from the Inspection Unit which you would presume to be highly sceptical.  Which makes it the most almighty refutation of Ritchie's ill-informed rhetoric.  It also firmly puts down Francine's wittering about this being an erosion of independence.  Under the more sensible UK independence framework, the Inspection Unit is comfortable that there are effective safeguards to address the threats to independence.

I shall enjoy the moment.  And I suppose it would be too much to ask for these rabid commentators to rush to admit their errors on Rentokil as quickly as they raced to shoot their mouths off about it in the first place.