Analysis: Shifting the balance of power

The balance of power in the accountancy world has shifted towards the big firms after the emergence of a new accountancy body backed with the full force of the world’s largest practices.

Last week’s news that the International Federation of Accountants has created a new Forum of Firms to improve auditing and financial reporting standards around the world saw a combined effort by the big firms to grasp control of standards and edge influence away from the world’s accounting institutes.

The GSC and the seven largest firms
The Global Steering Committee, up until now a shadowy, almost secretive, grouping of the largest seven firms emerged as the driver and power behind the new forum. The idea originated with them and one of its members will be the first chairman of the forum. Not only that, but the seven firms will be helping finance the forum through its start-up phase.

But the GSC’s significance, though broad, is in the way it presents the Big Five, plus Grant Thornton and BDO Stoy Hayward, as co-ordinating their efforts in an unprecedented manner.

The question everyone will be asking is whether it will shift the balance of power in the accountancy world?

The balance of power has shifted
As one source very close to the GSC says: ‘The institutes are no longer leading the profession – it’s the firms. The largest seven have 80% of clients and now have a hold on standards. The question is what will they do next?’

The belief among members of the largest firms is that it now matters little what institute is on an accountant’s CV. What matters is where they trained. Big Five firms matter, small firms do not. For old school tie, read ‘old firm’.

The UK institutes are impotent
More importantly, the firms have come to feel the major institutes in the UK, Europe and the world are effectively impotent in aiding their international interests. And these largely stem from a need to assuage the ire of investors convinced the same firm cannot deliver the same quality audit in different countries.

If anybody should be watching the work of the GSC it is investors groups concerned about the quality of financial information, especially in light of events like the economic meltdown in Asia. The Asian crisis highlighted the issue of varying auditing and reporting standards across the world, leading to the accountancy profession being lambasted by the World Bank for not doing enough to uphold standards.

Where is the GSC going?
Further initiatives from the GSC are planned for this year, according to its secretary Brian Smith, but the surprising thing about the GSC is the way it has managed to keep itself concealed and away from the glare of publicity for so long.

Smith says the body had not sought to be ‘secret’ but appeared ‘shadowy’ because it had chosen not to publicise its work until it had concrete proposals. Now it has made its move its history is also emerging into the spotlight.

The GSC has existed for nearly two years in its current form but started life five years ago as the European Contact Group to lobby and speak to decision-makers at the European Commission. The contact group still exists and its main target is to have the voice of the big firms heard by Karel van Hulle at the Commission.

But as just one of seven sub committees of the GSC, the contact group is evidence of a network of representatives from the seven firms criss-crossing the world to work on policy issues. The commitment in financial terms alone runs into tens of thousands of pounds given that Brian Smith, a retired partner from Arthur Andersen, works full-time for the GSC from an office provided by his old firm in London. He also has a full-time secretary.

The firms themselves fund partners on the main committee, and on the seven sub committees, to travel the world for meetings. Members travel from France, the USA, Toronto, Germany and London to attend GSC meetings – multiply the air miles by seven to get an idea of the effort that’s being put in. This is no ‘informal’ grouping, as the very few press reports on the GSC that do exist have said. It is a well developed, highly organised and well focused organisation with clear intentions.

The way forward…
And though its future initiatives remain under wraps there are some who believe they know the direction of the committee.

‘Education,’ says one source. ‘Why not? The clients are there, the standards are in place and there is great unhappiness among the firms with education.’

Such a move would be a threat to the institutes who have struggled to keep up with the demands of the big firms, and it remains unclear how the GSC would do it. But the motive and the funds are there. The GSC may represent the resolve. But only time will tell.

Links

Fears rise over ‘firms regulating firms’

Big firms in standards control bid

Ifac online