The Competition and Markets Authority (CMA) stopped short of calling for the Big Four accountancy firms to be broken up and instead has called for auditing and consultancy services to be kept separate in a move known as ‘operational separation’.

This will mean audit chiefs at do not get a share of profits from consulting and must answer to their own distinct board.

The CMA’s intervention comes after an outcry over conflicts of interest following a string of scandals involving the ‘Big Four’ accountancy firms of Deloitte, EY, PwC and KPMG.

In these debacles, the global firms have failed to spot a huge black hole at Tesco, the near-collapse of the Co-op Bank and the failure of outsourcer Carillion.

Defending the tempered approach to reform in the face of such calamities, the regulators said forcing the Big Four to split into completely separate consulting and audit companies would be overcomplicated.

The CMA said: “Given the difficulties with an immediate global structural split, the CMA is recommending an operational split.”

Its three main recommendations are:

• A split between audit and advisory businesses, with separate management and accounts
• A mandatory “joint audit” system, with a Big Four and a non-Big Four firm working together on an audit
• Regulation of those appointing auditors

CMA chairman Andrew Tyrie said: “People’s livelihoods, savings and pensions all depend on the auditors’ job being done to a high standard.

“But too many fall short - more than a quarter of big company audits are considered sub-standard by the regulator. This cannot be allowed to continue.”

But critics slammed the CMA for missing ‘a golden opportunity’ to reform the industry, a climb down that they said comes in the face of heavy lobbying by the multi-nationals.

Prem Sikka, an accountancy professor at the University of Sheffield, said: “The CMA’s report has been incredibly diluted and it is disappointing.

“This was a golden opportunity and the CMA had good intentions, but it’s really caved in to lobbying by the Big Four and their corporate lawyers, and to political pressure.”