Profits to be exposed in audit choice proposal

Auditors could be forced to disclose their profits on audit work under plans
designed to break the stranglehold of the Big Four on major audits.

The market participants’ group, tasked by the Financial Reporting Council
with finding ways to open up the market, made the suggestion as one of 15
released this week.

If implemented, the proposal will force firms to include a new layer of
information in their accounts. Accountants are currently only required to state
revenues ­ but such a step will bring firms closer than ever to the disclosure
required of companies.

The FRC hopes that making audit profit disclosure mandatory will open the
door to outside investment, which will in turn build up more audit players in
the market.

‘The measure is all about stimulating investment. Outside investors might
reasonably expect to find out if a business is making any money before
investing. There is also the view that because audits are statutory these
favoured suppliers should reveal how much money they are making,’ said FRC chief
executive Paul Boyle (pictured).‘If there is sympathy for this idea then we will
look into how this information can be reported consistently and comparably,’
Boyle said.

Other suggestions proposed by the MPG included opening up the files of
outgoing auditors to their replacements, requiring companies to provide
investors with more information on the audit selection process and allowing
shareholders to vote on audit committee reports.Accounting firms might also have
to comply with a version of the Combined Code on corporate governance.

Grant Thornton’s Steve Maslin said luring outside capital into the industry
would make no difference if the other recommendations made by the MPG were not
followed up.

‘Capital investment could see the creation of a new audit player, but I think
we have seen how fierce the market is and how difficult it has been for already
established firms to break into the listed market. The other measures need

to be adopted too,’ Maslin said.

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