Back to the drawing board on audit choice

So the Financial Reporting Council appears to have conceded that measures introduced three years ago to improve the audit market have had little or no effect.
Not only that but corporate governance measures introduced to make companies more transparant about their auditors seem to have failed dismally too. Few of the disclosures envisaged have been made, and where companies have revealed something it is usually only in the most superficial way.
For example, and perhaps most significantly, we know precious little more on whether the banks are forcing companies to employ Big Four auditors. The audit world is full of stories about knock backs because of these apparent “contractual obligations”. And yet somehow the FRC cannot find out if it actually happens – though anecdotally it continues to hear about it. One can only suppose this sorry state is a result of expecting companies to volunteer the information.
FRC research out yesterday reveals that most companies are staying silent on the issue. They are simple not saying.
This could be for any manor of reasons. It could be that they don’t want us to know that the banks are forcing them into a corner over audit, or it could be they were simply distracted by the battle to survive the recession and really couldn’t be bothered with new bits of corporate governance.
Either way, as well intentioned as the measures were back in 2007, the FRC report reveals – what everyone in the profession outside the Big Four already knew – they weren’t working. Non Big four firms have to some extent lost interest in the issue. Their fight to keep doing business during the crisis was perhaps all consuming and left little room for continued lobbying.
The FRC has now given itself six months to come up with something fresh. This will be interesting given that the new leadership appears sceptical about whether improving competition to the Big Four is even an issue. We shall see what happens.

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