Big Four face fresh scrutiny from US

With a review of audit here in the UK not yet resolved, the Big Four now find
themselves dealing with a fresh assault on their dominance by
US regulatory
authorities.

It now looks like they will have to go through the very same debate they
wrestled with here in the UK, that four big firms are too few and what do you do
to resolve it?

Here in the UK the Big Four lobbied hard for the view that the market should
be left to resolve the issue. People are free to choose other auditors, they
insisted, it just so happens the Big Four are the best.

Mid tier firms denied claiming the market was stacked unfairly against them.
As a result the Financial Reporting Council are finding ways of encouraging
another market – the one for starting up new international firms.

The Wall Street Journal already has a line on what the outcome may be in the
US and points at two broad changes to come: limiting of liability, and measures
to reduce ‘the concentration of auditors in the hands of a few big firms’.

Current SEC chairman Christopher Cox has already indicated how impressed he
is with the way the UK is dealing with the issue of audit choice. But Arthur
Levitt is in charge, a former chairman of the Securities and Exchange
Commission, under Bill Clinton, and is on record as saying that accountancy
firms cannot be trusted to regulate themselves.

Big changes are clearly on the way then. But the US is also looking at the
review from a different perspective. In the UK limiting liability and efforts to
deal with lack of choice came about as a result of two different reviews.

The US study is attempting to deal with both issues at once, a fact that may
create a very different dynamic when it comes to finding solutions.

The US Treasury is also worried about the vast number of accounting
restatements that take place each year. The belief is that the restatements are
forced by aggressive accounting caused by auditors who feel they shoulder a
disproportionate burden of risk.

But even then the driver here is not good regulation in itself, but
regulation that serves competitiveness of the US market as a whole.

Robert Steel, under secretary for US domestic finance said in a recent speech
that the audit review was triggered because: ‘The auditing industry faces other
challenges, which if remedied will enhance our competitiveness.’

The UK looked at the competitiveness of the audit market – Washington wants
something to deal with the competitiveness of US capital markets as a whole.

It could well be that any remedies that emerge may well be more sympathetic
to the position of accountancy firms over there than they might otherwise seem.

That might also explain why there has been barely a word of concern in the US
press from the auditors themselves. They might be back in the office quietly
seething, but equally they might be looking forward to the relaxation of some of
the rules that currently govern them.