Mazars make the case for joint audit – Part 1

“In France you have joint audit on all companies that have to prepare consolidated accounts, but that would include all listed groups – so all the high profile, big tickets: BNP Paribas, Axon, Chances, all of the major world global players. They all have joint audit.

“If you look at France it’s refreshingly scandal-free.

“As part of this debate, the people who are trying to diss the joint audit set up try to find issues in France and there are none. You haven’t got a Carillion, you haven’t got a BHS, you haven’t got anything of that nature out there and joint audit’s been in France for 50 years.

“Everyone’s got terribly upset because we’ve had a series of what are perceived as audit failures, really it’s corporate failures that the audit didn’t catch and there also have been some audit failures where firms haven’t been good enough at doing what they do. We’ve have had a whole bunch over here, there’s been a bunch in the US, haven’t had any in France.”

The three key issues:

Oligopoly

“You have got a captured market at the moment, you have got an oligopoly of four players and our frustration here is that in the rest of the world we managed to get into those big players. In France, we audit 12 of the CAC 40, the top 40 companies in France, and we just can’t do that here.

“It’s just closed to us despite loads of effort doing loads of pitches and you just cannot get in because it’s a closed shop.”

Competition

“Now there is a very clear view that what competition brings is better quality because the big four don’t need to be good, they know they’re going to get the work. I’m not saying they’re not setting out to be good, but they don’t really need to be. Because if you haven’t got that competitive environment, it’s not driving innovation, it’s not driving disruption, it’s not driving quality.

Resilience

“When one of the four disappears which here would be a complete disaster, you could not run the system with three companies. I remember Andersons disappearing. It was only 15 years ago and that’s not long in business cycles and it is absolutely plausible that one of the big four, one of the challengers could disappear pretty much overnight as Andersons did. You only need a massive reputational failure, probably not here in the UK because we’re more forgiving. That would happen in the US, it would be something in the US that took them out and there have been a few things bubbling about which probably did threaten the existence of two of the big fours within the last few years.

“Now to get that competition working and to deal with the resilience question, what you need is some other firms who have the depth of resources, the depth of experience technically and strength in-depth.”

How can you achieve that in the best way and why are Mazars for joint audit?

“We’ve looked at what has happened in France in the last 50 years. Quality seems to be better, no scandals. When you look at the top 40, there are 12 non-big four firms who are auditing in that space. You’ve got none of that in the UK. FTSE 350 is 97% big four.

“In France, you know everyone says well it’s only Mazars. No, it’s not only Mazars, beyond Mazars there’s 11 other firms operating in that space. Yes, we do more than any of the others but you’ve got a more resilient market with more players, and you seem to have more competition and innovation.

“Interestingly, we also think overall audits cost less in France because of that innovation. You haven’t got oligopoly profits in the same way either. That’s really hard to prove but we’ve done some analysis just looking at the cost of audit by market capitalisation. If you take the top one hundred companies and look at the cost of audit by market cap and compare that between the UK and France. It’s cheaper in France.

“France has created a more competitive, more resilient environment that seems to have high audit quality and it’s created off joint audit and that’s the difference.”

Available now: Mazars make the case for joint audit – Part 2 and “I’ve never seen a moment like this” – Mazars on joint audit. Part 3