BARNIER'S DRAFT green paper on audit presents a wish list of measures designed to enhance independence and quality, but many stakeholders are deeply unimpressed.
The complete ban on audit services, mandatory firm rotation and joint audit stand out, but the paper is crowded with other radical measures sure to provoke furious debate.
One of the biggest surprises is that the current draft serves up the original proposals in their entirety, defying stakeholders who expected at least some to fall by the wayside.
Global head of BDO Jeremy Newman said for this reason, it is hard to separate the proposals and say which is good and which bad - they must be considered holistically, and the interactions between them given careful thought.
"Based on my understanding of the paper, it is evident that Barnier has recognised some of the deep-running issues in the audit market, and this is clearly welcome," he commented.
"Some of the proposals go further than I would agree with - they could be challenging and potentially awkward for the market," he concluded.
With a whole raft of measures to choose from, their interaction could pose problems. The suggested mandatory firm rotation timescale is nine years, while current rules on partner rotation force a move every seven years, and calls for obligatory five-year tendering add another layer of complexity.
Do these potential inconsistencies mean Brussels is merely testing the waters, and has no intention of imposing the measures wholesale? Critics would argue it shows a lack of foresight, or even a personal crusade driven by Barnier.
Enthusiasm for mandatory rotation is low among the institutes. ICAS warned: "There is no evidence that this will enhance audit quality but it could on the other hand reduce it."
CIMA technical specialist Nick Topazio agreed: "We do not see the evidence that [it] will necessarily enhance audit quality or effectiveness."
ACCA's Jonh Davies, head of technical, was even more guarded. He said Barnier's proposals indicate an obvious focus on independence, scepticism and objectivity, issues that "go right to the heart of audit quality".
"The [question] now must be whether the promotion of those causes is best advanced by the imposition on large company audits of extensive statutory rules and restrictions ... which can turn out to cause as many problems as they solve," he concluded.
ICAEW chief Michael Izza welcomed some of the proposals, including strengthened tendering processes and greater transparency around auditor appointment.
He acknowledged that being seen as independent is a challenge the industry must address, saying: "Where we believe the status-quo works, we must demonstrate why. Where we believe change is necessary to maintain confidence, we need to be open and willing to engage."
Big Four interests are most threatened by Barnier's proposals. At their size, they will cop the full force of regulation completely separating audit and non-audit services, potentially compelling them to split and trampling on their business model.
Deloitte said the ban on non-audit services, joint audits and mandatory rotation "would harm quality", concluding: "We believe that the costs of any proposals for audited entities should not outweigh the benefits derived from improved audit quality and auditor choice."
However, it underlined its unwavering commitment to "supporting measures that would sustain and enhance audit quality and build confidence", a line that is likely to be echoed by peers.
PwC's Richard Sexton, head of reputation and policy, said the proposals are "well intentioned, but with unintended consequences". He noted the Big Four have "responded to market demand" and provide a host of services to global behemoths that are "perfectly capable of getting the right services at the right price", saying PwC has invested heavily to meet this commercial need.
As they stand, it is hard to find stakeholders who welcome the whole raft of Barnier's proposals. They are far too hard-line for the Big Four, worrying for the institutes, and not wholly palatable to mid-tier firms.
Perhaps this means Barnier is on the right track? Some have questioned whether this dogmatic doctrine is merely a jumping off point, designed to soften up stakeholders so that when the final, less hard-line paper emerges, it will be welcomed with relief.
The long list of proposals could also ensure that, even if some do not make it to legislation, at least a few will have stuck. Stakeholders will have a better idea once the completed document is published next week, and this sneak preview has raised the stakes.
As expected, the bigger firms and their professional bodies are quick to react and comment, but what about more important stakeholders such as investors and creditors? And taxpayers.
Posted by: George Kirrin, 27 Sep 2011 | 11:43
firstly I must appreciate the comments passed by the stakeholders and unimpressed by the draft on green paper.
having expeirence of 18 years in audit and finance and working in key positon , My view are back to the stock holders that crisis in European countries evovle numbers of factors created artifically and supressed the market by the lender and weakness of some the european countries of not tightening thier belt in term of financial deficit . moreover, the credit paper market also create a vaccum in the money market and all the speculations and traders and comapnies who are doing international in money market and money laundering to get better return on risk available to them in order ot to cover it up and make an good return. now move on to the Independant of auditor of big four firm. In audit firm there are two types of audit one is doing the conducitng the audit services as per purdential rules and regulations of their country and standard of audit guideline . The other audit services is advisory service to help to their client to adhere him form high violate risk market and doing the business within the minimum risk cover.
if one audit big firm conduct the audit its independant always weak to market competitions, pressure internal and external and their client , their vested interest in monetory term and globally situation and obviously thier qualtiy of good audit suffered . so therefore, it is very wise to condut the joint audit one could do assets side other could balance sheet side and income and expenese vice versa. The advantage of this joint audit that opinion of two auditor could give in right direction and no body over ride other and they try to do their level best to the client expecations and weakness and flaws of internal and external and system could be minimized and give correct and ture picture of finanancial statmement and state of affairs of the company. it could be possible that collusion could be made between two big firms but practically for reputations and market competition chances are less likely. it also happen due to the market situation and business entity the auditor could compromise with the client but when if it related to going concern and other discloure of note then auditor always avoid to save his skin for reputation and other agencies governing bod. The vested interest of stock holders are always been deprived by the majority shareholder and promoters and try to do their best transfer benefit to the stockholders. The hedging and parking the fund in less risk cover area und is key role of treasury manager if it is good and professinal and reputable organziation of the world other wise their decision are always controlled by the borad of investment which have less effect low return on their investment if unutilsied fund.
therefore, it is very truely said that the job rotation of audit firm must be done but practically the comapnies always try to avoid to vested their interest for their hidden secret which always keep away from the stakeholders and other granting agency. The most poweful effect the audit service which play dual role in giving servicing the audit and do the conduct the audit which is contravention against the law and ethical practice. therefore the conclution could be derived that :
1. The service and conduct of audit should be seperate conducted by two differernt four big firms.
2. if possible practically the rotation of audit firm must be made not for only sake of rotation and resutl could be zero but must be in constructive nature.
3. if audit firm visualize where interest of stakeholders are deprived they must save their interest and reported in the audit reprot.
4. The audit firm must keep keep themselves in the place of owner to review alll the area in real business term and not only doing for checking and other goverment rules an regulations.
5. The crisis European countries as mentioned earlier are on money market and it is intersting to note that all the world major bank like Dutche, china bank.barclay bank, etc play thier client money available to them.
IF USA do not try to contorl and sustain thier growth of economy then dark clouds of world economcy would not be growth further as USA are based on consumption base economy and all the world lending agencies are governed and controlled directly or indirectly by the USA.
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Posted by: ABDUL HAMEED.BOOLANI, 30 Sep 2011 | 12:03
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