The fall-out from the financial crisis continues to dominate debate in the shape of enquiries by the European Commission and UK Competition Commission into the dominance of the Big Four in the audit market
The fall-out from the financial crisis continues to dominate debate in the shape of enquiries by the European Commission and UK Competition Commission into the dominance of the Big Four in the audit market.
"We do not believe it is appropriate to intervene in the market by downsizing or restructuring the Big four audit firms, nor by artificial intervention into the market such as putting 'caps' on the number of audits that any one firm can carry out," says David York, head of auditing practice at the Association of Chartered Certified Accountants. "Companies must have a right to appoint auditors of their choice and the long-term answer must lie in persuading directors and investors that their best interests are served by a healthy, competitive audit market."
Craig Anderson, senior partner at KPMG, says the UK Competition Commission's review of the audit market has placed a heavy demand on firms in terms of the information requested. He adds: "The starting point for most listed and other public interest entities is increasingly that they'd rather not use their auditor for anything other than audit as they may have to explain that decision. With the level of scrutiny and potential intrusion management face, they would rather get on and run their businesses than spend time explaining their actions to others."
On the European Commission review, being led by EU Internal Market Commissioner Michel Barnier, Anderson says: "The real threat is the cost associated with a tender opportunity - for both the company and the audit firms. More money will be spent on tendering and changing. There's also a real danger that if it's mandatory, it all happens at once, so there's a huge flurry of activity and then in five to seven years it all happens again."
PricewaterhouseCoopers Scotland's senior partner-designate, LIndsay Gardiner, says both reviews are creating uncertainty. "My very strong view is that there are matters for the audit profession to reflect on. However, breaking up audit firms and mandatory tendering, to my mind, don't improve audit quality.
"We keep stressing that audit quality is enhanced by having multidisciplinary firms bringing different skills and experience. Experts from across the firm in tax and financial services, for example, are called in to look at complex parts of the accounts that have to be signed off.
"There's a real concern that if you break up firms into audit only, they're less attractive for people to join. also, you're potentially reducing the talent flow into the firm by preventing the best graduates in all disciplines from choosing to work here."
Jim Bishop, senior partner in Scotland at Ernst & Young, predicts Barnier's proposals will have a major impact on the sector: "I think there will be a lot more tendering in the next 12 to 18 months whether it's mandatory or not. Companies have started to look at the nature of their relationship with auditors. It's an exciting time, but it's an expensive process on the company side and from the tenderer's point of view."
Ian Steele, senior partner for Deloitte in Scotland, says the industry is anticipating the findings of both reviews and will have to respond accordingly. "While there is still no certainty as to what will change; change, in some form, is very likely," he says. "There will be winners and losers in the market so the key will be to be on the front foot and see this as an opportunity for quality and agility to prevail. Regardless of what changes are implemented - even if unpopular with the majority of clients - they will look for help to optimise their performance and ensure their businesses are not adversely impacted.
"It's already extremely competitive in our market, so we are accustomed to that, and we will use the opportunity to refresh our tactics."