Mazars make the case for joint audit – Part 2

Mazars make the case for joint audit - Part 2

Continuing our discussion with Bob Neate, Mazars' UK Head of Audit talk, we hear why joint audit is better than shared audit, whether its a realistic proposition for the UK market and why he's so passionate about the future of joint audit.

Mazars make the case for joint audit – Part 2

Why is joint audit better than shared audit?

“In joint audit you are jointly responsible for the audit opinion. You have to do enough on the whole of group, you’re there in the face of the audit company and the board, and you’re then touching all the space, and all of the business.

In a shared audit, you have one firm which inevitably would be the big four being the group auditor and you have another firm that just does a few of the components. Our experience is that shared audits have always been done as a cost saving exercise. Rather than have another firm come in and do the subsidiaries at the end of the chain which are less significant, less material, they just do the statutory audit and do it cheap. That’s been the motivation behind them. But whichever way, there is a dominant auditor in a shared audit who issues instructions to you and therefore controls the work, and all you are doing is a bit of work on their behalf.

You’re not touching the audit committee, you’re not touching the board, you have no say on the risk assessment, you have no say on the outcome, you’re not reviewing their works, and there’s no cross-review so you don’t get any of the quality benefits. As a consequence, all it does is give us a bit of fees. It doesn’t move the game on in terms of resilience and competition.

The only benefit we see from shared audit is we get a bit of fees, but it doesn’t take us forward, it doesn’t change the competition environment in any meaningful way. To us, it doesn’t answer the question that was set and if that question’s important, then you have to answer the question that was set.”

Do you think joint audit is workable?

“Yes absolutely. Our submission to the CMA included a model of how we would do it across seven years, how we thought you could get full integration of the challenger firms in a joint audit environment, and in reality, it’s not the FTSE 350, it’s not 350 companies.

I think it’s 264 because they’re going to exclude venture capital trusts because they’re not considered terribly risky. Then it will be a bit less than that because you’ll exclude HSBC and one or two other major, major businesses. They’ll do a peer review which I thought was a really good idea. So, you’re down to about 250 companies and you’ve got at least four firms who will play in this space as challenger firms.

Businesses have to go to tender every ten years, so that’s ten years to phase it in. We’re looking to grow by about 3.5% compound per annum and the big four will only be losing at something like 1-1.5% per annum. So, it doesn’t destroy their business because they’re not suddenly losing half their income overnight which would mess up their cost structures. It’s a decline for them and it’s a growth for us at a relatively sensible manageable pace. Is it going to be easy? No, I’d be naïve to say it would.

We audit some massive companies. We audit AXA insurance, we audit Vauxhall motors and the whole PSA group in the UK, we audit the likes of Thales – one of the biggest defence companies. They happen not to be listed in the UK, but the bits we do in the UK are huge.

So, we have everything you need to audit them. We’ve got all the specialist skills, we’ve got the people with the right technical capability, and we know we do it really well because the clients tell us. We’ve got that depth of experience.

What we haven’t got is enough of that for the world in five years’ time. So, our job is to just grow outwards in a controllable way where you don’t risk losing quality, because growth is always risk.”

Why are you so passionate about joint audit?

“I want to say I’m altruistic and a generous kind of chap, and in a funny way there’s no incentive for me to make this investment because I plan to retire before the benefit will come in! it’s only costing me profit share but I’m happy to do it because I love the profession.

I think what we do is really, really important and I think it’s gone astray for commercial reasons and I want it to get back here. I trained to be a chartered accountant because it stood for something. It stood for quality, it stood for integrity, it stood for ethics and you were proud to be that. Nowadays, you tend to join a firm rather than join the institute, and this is an opportunity to get pride back into what we do. I’m really happy to invest in that because I’ve dedicated nearly 35 years of my life to that.

Part of the reason I made that jump [from the Big Four to Mazars] is because I saw a firm that still believed in audit and thought audit was really important and kept that at the heart of what it is. For Deloitte, 14 percent of their business is now audit, it’s not at the heart. I don’t care what they say. It’s not at the heart of the minds of management apart from the fact they get more grief.”


Catch up now with Mazars make the case for joint audit. Part 1

The final part in the series is also available: “I’ve never seen a moment like this” – Mazars on joint audit. Part 3

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