PracticeAuditBDO chief warns auditors may “cut corners” to save on costs

BDO chief warns auditors may "cut corners" to save on costs

There is "increasing evidence that fees are being forced down" auditor warns

Cost pressure and competition are encouraging auditors to “cut corners”, a
senior audit head has warned.

Jeremy Newman, CEO of BDO Global, warned of “extreme downward pressure on
fees” which is threatening the quality of audits and encouraging auditors to cut
corners.

“There is increasing evidence that fees are being forced down to such an
extent that one worries this will encourage audit firms to ‘cut corners’ to
reduce their own costs and thereby reduce audit quality,” he said in his blog.

“I am concerned about the potential effect on audit quality. I am concerned
about the effect this will have in enabling us to continue to attract high
quality, committed people to the profession. And I am also concerned at what
this phenomenon says about the operation of the audit market and the extent to
which it is a free market.”

Newman cited the Australian Securities and Investments Commission and the
Canadian Public Accountability Board, which have both expressed concerns on the
subject.

He said while there is “no doubt” the overall level of demand for audit
services has reduced, the decline should be offset by additional regulation,
changing accounting standards and the need for quality audits.

“Capacity has also fallen due to lower recruitment levels and staff
redundancies and, in my view, in most cases by more than the fall in demand for
audit services,” he said.

“In these circumstances, according to elementary economic theory prices
should, if anything, rise. Yet this is not happening – and fees … are falling.”

Further reading:

Don’t
blame the standards, says BDO chief

Jeremy
Newman Blog: A BIZARRE MARKET

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