That’s the profession’s blunt opinion after Oxera published its EU-commissioned report last week.

The report concludes that a change in the current rules might encourage outside investment in audit firms and help alleviate the lack of choice for large audits. In fact, it identifies restricted ownership as a major obstacle to investment, because it increases the cost of capital and the expected rate of return before an investment is made.

Accusing the report of being ‘no panacea’ is no criticism, however. The Oxera authors acknowledge that changing the ownership rules alone is no answer, it has to be in tandem with reform of liability. Now that the report is written it’s a fair bet that the EU will push ahead with modifying the current rules. And the change will put in place another plank that will build the reform needed to change the audit market.

In the UK, liability reform is due to arrive in April next year and the Financial Reporting Council has put in place some recommendations to ‘promote’ audit diversity. But don’t expect dramatic change any time soon. Ownership reform is likely to have an effect only in the medium- to long-term.

That perhaps is a big-time window in which an event might happen to create the kind of audit chaos that financial regulators the world over dread. Having said that, only one global firm has ever completely disappeared through reputational damage, which means we have some time. What’s also needed is a will to build another big firm. And that will only come if the risk looks manageable. Overcoming that obstacle might be the most difficult of all.

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