WATERED-DOWN audit reform proposals have provoked a forceful response from stakeholders, with the Big Four calling for more concessions and the mid-tier up in arms.
Internal markets commissioner Miichel Barnier (pictured) has ditched mandatory joint audit – the darling of mid-sized firms – and strengthened mandatory rotation requirements by shortening the maximum engagement period from nine years to six.
The pushed-back publication date hinted at changes afoot and Barnier does appear to have softened his stance in response to strident criticism from some stakeholders.
BDO’s James Roberts, said: “The remaining proposals appear to be worse for the market than no proposals at all.”
He said it was “ironic” that measures to address concentration and independence “have been so turned on their heads” by lobbying and the “extensive influence” of top firms.
Mazars’ David Herbinet said audit was “too important to be structured around the self-interest of a dominant few”, but commended the European Commission for “launching a formal and transparent public debate” to encourage “the robust audit market the economy needs”.
RSM International said it was “concerned that the initial proposals have already been weakened”, saying it will “continue to argue strongly for a package of practical and pragmatic solutions to improve quality and competition in the audit market”.
PKF senior partner Richard Bint warned mandatory rotation “will not, by itself, deliver a change in market concentration”, calling for stronger market-based measures.
The Big Four gave a low-key welcome to the row-back on mandatory joint audit, while remaining fiercely critical of the surviving headline proposals.
Audit-only firms remain one of the least popular measures, with PwC saying there is “no concrete evidence for any positive impact” and a lack of proper impact assessment for the increased cost to business.
Deloitte highlighted the negative implications for financial institutions, saying they present the most complex audit challenges, which “would be most counterproductive for the very sector that has been the central focus of regulatory reform efforts”.
Ernst & Young supported the introduction of a European audit passport and efforts to create a single market for audit, as did many of the largest players.
E&Y said this would “increase choice and enhance audit quality”. Most respondents agreed that a unified audit market would strengthen the industry.
KPMG argued the radical proposals are “in marked contrast to the views of the majority of stakeholders”, including financial behemoths, investors and academics.
It called the package a missed opportunity to introduce “a meaningful framework for change”, and encouraged Brussels to “take full account of the responses received to the European Union consultation document”.
The shortened mandatory rotation period found little favour with any stakeholders, as RSM Tenon, business organisation the CBI and ICAS spoke out against it.
ACCA said the shortened maximum engagement period “could amount to a heavy cost burden that will ultimately be borne by businesses”.
Barnier has used mandatory rotation to encourage joint audit, allowing jointly audited companies to extend their auditors’ engagement period to a maximum of nine years.
Mazars’ Herbinet said this will be a “strong incentive” as there is always “a very significant cost to changing auditor”.
“Joint audit will allow companies to keep their auditor for longer and always have one firm in place that really understands the business. It is a very nice way for them to maintain continuity,” he added.
The proposals were accepted by the College of Commissioners this morning. They will now be debated by European Parliament and might be sent back several times to Barnier’s office for revision.
A final directive could take several years to emerge, but the ongoing UK Competition Commission inquiry will ensure the issue remains on the table.
“It is almost unheard of for two inquiries to run concurrently,” concluded Herbinet. “They will be asking some very hard questions of the status quo.”
UK senior partner Phil Verity has been elected for a second term at Mazars
An audit partner has been appointed at Grant Thornton in its North West offices
KPMG has been appointed with “immediate” effect as the auditor of Dorcaster
The audit for Ibstock will be taken over by Deloitte following a competitive tender process