Paul George, director of the Public Oversight Board, recently called for the consolidation of small firms undertaking audits in the interests of improving audit quality.

He is right to be concerned. Quality is an issue that needs to be managed by the profession. It should make no real difference to quality if the engagement concerns a listed company or a corner shop business.

But there are other issues. If the audit threshold keeps rising, fewer audits will be required, and for many firms the increasing complexity of regulation won't help persuade them to stay in the market. Added to that is the reduction of training places for the next generation of auditors.

Pursuing a policy of consolidation may not be any easier among smaller firms than it is for mid-tier firms.

An obvious obstacle is the willingness of small firms to take the plunge and combine. Very often, small firms are small because the owners like it that way. They can control the type of work they do, the level of risk they accept, and make decisions in their own time to redesign their services.

George's suggestion also needs to be viewed against the backdrop of the European Commission's plans to deregulate the accounting and audit environment. The outcome of this project, still in its early stages, will go a long way to settling whether there is a place for the smaller firm in the audit market at all.

The project is focused on scrapping much of what currently constitutes the accounting and reporting framework for small companies. Many medium sized companies would become exempt from the audit. The turnover threshold for this type of business is already £22.8m; soon to increase further.

If medium sized companies become audit exempt, who would be left for any merged small firms to audit? Would they be any better off in a slimline marketplace than small firms are today, now that 80% of small companies have decided to opt out of the audit?

With quality partly a function of constant engagement and exposure to audit work of different types, an alternative to consolidation may be the emergence of specialist firms with highly competent staff and contemporary audit methodology.

Is consolidation or specialisation the key? Further debate is needed to resolve this issue and the multiple factors impacting on audit quality.

Allen Blewitt is chief executive of ACCA