KPMG merger will create biggest accountancy firm in Europe

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KPMG is to merge its UK and German operations to create Europe's largest accountancy firm. The merger, which will take place as early as spring next year, will create a new entity, KPMG Europe, with a projected turnover of more than £2bn.

The arrangement will only become legally permissible once the UK and Germany ratify the European Union's Eighth Directive, which the two countries are both expected to incorporate into national laws some time next year.

Until now, EU law has prevented cross-country ownership in accountancy firms. As a result, the four biggest accountants in Europe - PricewaterhouseCoopers, KPMG, Ernst & Young and Deloitte - all operate as networks, with separate firms in each country. KPMG said it expected its member firms in other EU countries to join the new firm once their own governments ratified the legislation.

Eli Amir, head of the accounting faculty at the London Business School, said such a merger made good sense for leading accountancy firms, though KPMG will be the first to restructure in this way. Professor Amir said: "The major advantage to operating as a single large international accounting firm is that you would have much more appeal to the largest potential clients, international businesses that operate on a cross-border basis."

John Griffiths-Jones, the chairman of KPMG's UK business, said the merger would also give the firm more opportunities to influence European lawmakers. He said: "KPMG Europe will have a strong European business voice to champion improved audit quality, liability reform and the highest standards of professionalism in the public interest."

The combined entity will operate as a limited liability partnership.