MID-TIER FIRMS are “worried” and have written to the Department for Business, Innovation and Skills, underlining their support for many of the European Commission’s audit reform proposals.
The letter from Group A, an association of the ten largest firms outside the big six, has come shortly after a leaked BIS email indicated the government is lobbying hard against Brussels’ plans.
In the email, BIS called on European counterparts to resist proposals such as mandatory joint audits and auditor rotation, and provided a briefing template to coordinate responses.
One Group A senior partner said BIS’s behaviour was “very strange”, saying the timing and content of the email was “very surprising”.
With only a leaked draft of proposed reforms to go on, the government should not be engaging counterparts or taking such a firm line, he said.
An impact assessment has yet to be carried out, and the senior partner was “concerned” that such strong views have been expressed ahead of the investigation which is supposed to inform the government’s stance.
“Of course we are worried,” he said, questioning how many Big Four employees are on secondment in government departments, and whether BIS can therefore be truly objective.
The letter from Group A calls for “robust action” to tackle concentration at the top of the market, saying it is at an “unacceptably high level” and voluntary initiatives have failed.
Calling EU-level regulation “essential”, the firms advocate joint audits, “regular and fair tendering” and a market cap for “dominant audit firms”.
“This constitutes an integrated programme of reforms which we believe to be the only rational mechanism for bringing about the necessary changes in market structure within a tolerable time frame,” the letter continues.
Big Four insiders have denied the leaked email indicates BIS is more attuned to their voice than that of smaller peers, saying the contents reflect a government position which has already been set out by the House of Lords and in responses to the Office of Fair Trading.
One insider argued the email reflects concern in the UK and Brussels that the commission’s own impact assessment was sub-standard, saying: “It will be interesting to compare and contrast the forthcoming UK impact assessment with that carried out by the EC.”
A final version of the EC’s audit reforms is expected next month, and will be considered by the College of Commissioners on 23 November.
A BIS spokesperson refused to comment on the leak, but said: “The Government’s response to the October 2010 Audit Green Paper, along with our response to the House of Lords Committee Inquiry into audit, are the most recent expressions of the our position in this area.
“Their final form is subject to intense speculation, but we would point out that the Commission’s proposals have not yet actually been published. What will be important when they are, is that the proposals support growth, do not impose unnecessary regulation on business and ensure that audit quality is not reduced.”
This stance indicates BIS is worried the EC proposals will hurt quality and tie firms up in red tape, suggesting their official response will echo the leaked email.
Experts have claimed the impact assessment is being carried out by the ICAEW on behalf of BIS, although the institute has not confirmed this.
Despite the government apparently forming its opinion ahead of the official assessment, the Group A senior parter said he “has confidence” in the impact assessment team.
BDO audit partner James Roberts said BIS’s actions are “very puzzling”.
“It seems they are largely dealing with points of implementation, not principle,” he observed.
“Auditors are essentially project managers. There are thousands of us in Europe, if we can’t manage to organise a joint consortia to examine implementation issues, we should probably be in another job,” he concluded.
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