In the audit bunker

Auditors, especially those in the Big Four, must be wishing they’d built a bomb shelter with last year’s profit share given the barrage they’ve been under over the last couple of days.
Yesterday, European commissioner Michel Barnier outlined his plans for transforming the regulation of audit and today the UK’s Financial Reporting Council says it wants more powers to sanction auditors. In turn this echoes thoughts expressed by the Financial Services Authority a month ago. It’s open season on auditors and everyone wants to have a crack at them.
I wanted to draw your attention though to one small item in yesterday’s European green paper on audit regulation.
Barnier says the commission will “seek to address the issue of contractual clauses that are informally referred to as ‘Big Four only clauses’.” The option proposed is a form of licence certifying that an audit firm is up to big audit contracts (this in turn repeats something the FRC was recently saying about small audit firms At the time I said you couldn’t ‘licence’ small audit firms without doing the same for big players).
The proposal is interesting but what’s more interesting is that the commission seems to have accepted that Big Four only clauses exist and that they are getting in the way of a properly functioning audit market. This is a position Accountancy Age has held for some time. And we’re glad to see official recognition of the problem. Indeed when Barnier’s paper quotes the term ‘Big Four only clauses’ it in fact quotes Accountancy Age.
That said it’s not entirely clear a ‘licence’ as such would deal with the problem. The issue is not necessarily one of actual competency but of how it is perceived and the branding power supporting that perception. That’s a more tricky problem to deal with and probably requires an altogether different approach. Not sure we’re there yet on this one.

Related reading