Plans to enhance competition at the Big Four end of the audit market are to be dropped by the body set up to make audit firms more palatable to big investors and legislators.
The Audit Quality Forum was working on reforms to competition as part of a quid pro quo for extra auditor protection from catastrophic compensation claims. But it is now understood that the project will be shelved when the AQF meets on Monday.
Competition reform was expected to smooth the way for mid-tier firms to compete with the Big Four. This was viewed as a necessary part of improving audit quality – a process the government said was needed if it was to offer more protection to auditors in the current draft of the companies bill.
Mid-tier firms are now concerned that the lure of extra protection in the form of proportionate liability by contract has undermined the cause for more competition.
‘There are some that might question whether lip service is being paid to the matter of competition, now proportionate liability is on the cards,’ said one mid-tier partner.
Others in the mid-tier have taken a more pragmatic approach. Another partner said the issue of competition was ‘important but less urgent’ than the other AQF debates.
If approved by the AQF, the debate on competitiveness will move onto a long-term timetable, and the subject will not be seen as a priority.
The other main issues – shareholder questions to the auditor, contractual terms, identifying the audit partner and auditor resignation statements – will remain high priority.
One member of the AQF said the body did not want to be drawn into a ‘knee-jerk reaction’. He said that some members had argued that expanding out from a Big Four could actually prove competitively harmful, and maintaining the status quo could be the best solution.
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