Reforming audit ownership rules to allow outside investment into the
profession has been hailed by regulators as the silver bullet that could solve
the worrisome issue of concentration in the audit market.
The main problem with the idea is that the auditors are the ones who need the
When the European Union published an Oxera study extolling the benefits of
outside investment last year, audit firms gave a very cool response to the
findings, saying they had partner capital and bank debt in plentiful supply.
Undeterred, however, EU commissioner Charlie McCreevy said he would forge
ahead with a consultation on the topic in an effort to push the debate along
McCreevy’s office said it would launch a public consultation in the first
quarter of 2008, looking into why auditors, especially those in the mid-tier
(supposedly the main beneficiaries of any law changes), have been hesitant to
buy into the idea.
Informally, auditors have raised concerns that a relaxation of ownership
rules could reduce the quality of audits, pose a risk to auditor independence
and create conflicts
‘Some have suggested that we should do away with ownership restrictions in
audit firms and allow other players not only audit partners to invest in an
audit firm. I want to hear more about both sides of the argument before deciding
on the way forward,’
The consultation and its outcomes will be keenly monitored by key regulators
from the world’s largest capital markets.
Financial Reporting Council chief executive Paul Boyle has enthusiastically
backed the idea that investors injecting cash into the profession could
encourage growth of mid-tier firms into larger networks with more global reach.
Ownership structures of firms have also caught the attention of US
regulators, which have just begun hearings into issues affecting concentration
of the US market.
International bodies such as the International Organisation of Securities
Commissions, meanwhile, have begun discussing the future of the profession in
the rules excluding ownership by non-professionals.
Momentum for changing the rules on ownership is clearly building, but
concrete moves to re-write legislation to allow external investors into audit
still look some way off. Firms seem hesitant and potential investors have yet to
show strong interest.
With the launch of the EU consultation McCreevy, and his fellow international
regulators, will be hoping to speed the process up and win over some of the
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