Partners' salaries and other financial details will be disclosed by the leading accountancy firm KPMG within three months as a result of its decision to create a limited company to carry out audits of publicly quoted and financially regulated clients.
The creation of KPMG Audit, which will be wholly owned by the partnership and capitalised at pounds 50m, was confirmed by Britain's second-largest accountancy practice yesterday - so ending months of press speculation. A vote of the firm's 600 partners had been overwhelmingly in favour of the proposal, senior partner Colin Sharman told a press conference at London's Savoy Hotel.
Under the new arrangements, the company and individual partners can be sued, but partners not connected with the work at issue will be protected by limited liability.
The company will have a turnover of about pounds 100m and expects to have 400 listed and 300 regulated clients plus their subsidiaries. Clients that do not fit into these categories of "public-interest" companies will continue to be audited by the partnership, with the 300 audit directors - currently partners - splitting their time between the two operations. Last year, audit business accounted for about pounds 200m of KPMG's total fee income of more than pounds 500m.
Mr Sharman defended partial incorporation against suggestions it might create confusion, saying the new structure would enable the practice to improve the management of listed and regulated company audit business and "provide a clear division between audit and non-audit services". Clients whose audits were not being transferred to the new company would receive the same standards of audit service as the others, he added.
KPMG Audit will start work on audits relating to financial years starting in 1996. But the firm intends to publish an annual report for the financial year to 30 September in January.
Mr Sharman and his colleagues have not yet decided which firm will audit the combined accounts of the partnership and the company, but concerns over possible conflicts of interest will probably rule out another member of the Big Six leading firms.
KPMG, which has been advised on the matter by Lazards and the City law firm Slaughter & May, is convinced that its decision to protect itself from spiralling law suits by incorporating marks a turning point in the development of professional firms. It also believes publishing full annual results will set a precedent its rivals might be compelled to follow. The company says clients have been attracted by the idea of knowing as much about their accountants as they do about most other suppliers.
Coopers & Lybrand, the country's largest, and Price Waterhouse are among the leading firms known to be examining the issue, though neither would be drawn on their plans. However, John Roques, senior partner of Touche Ross, confirmed his firm's opposition to limiting liability in this way. While pointing out that he and his colleagues would look at the issue carefully, he said he was concerned that the profession may be perceived as becoming a "low-cost, low-quality, low-responsibility and low-risk supplier".
Mr Sharman, who will chair the 10-strong board of the new company, said the move was "a bold step for the accountancy profession, but one that we believe is necessary to protect and develop our business and our people in the next decade".
He added that clients had been overwhelmingly in favour of it, and pointed to the endorsements of such well-known business figures as Sir Evelyn de Rothschild, chairman of NM Rothschild; NatWest Group chairman Lord Alexander and Cable & Wireless chairman Lord Young.
The firm stressed that the move did nothing to weaken its support for the campaign to reform the principle of joint and several liability, under which auditors can bear the total loss in a corporate collapse regardless of their degree of fault. A Law Commission feasibility study on this issue is expected by Christmas.Reuse content