Size isn’t the issue

While I welcome the recent public report by the Audit Inspection Unit on the
quality of audit work, I am disappointed that some have chosen to focus on one
or two sentences out of context rather than the totality of the report.

I am also disappointed that, by reporting separately on the Big Four firms
and ‘other significant’ firms, the AIU has enabled those that wish to perpetuate
the myth that there is a difference in the audit quality of firms in each of
these groups.

Finally, I am disappointed that although the AIU has recognised the lack of
homogeneity between the ‘other significant’ firms, they have nonetheless
reported on us as a group thereby permitting those who wish to presume that the
criticism of some firms relates to all firms.

So what are the key messages we need to take from the report?

First, the AIU recognises that the issues identified at the ‘other
significant’ firms are broadly similar to those identified at the Big Four firms
on their first inspection visit.

Interestingly, the AIU noted the Big Four firms have only made ‘satisfactory
progress’ in implementing its recommendations of last year. Given the resources
of the Big Four surely this is not good enough? Nobody ever got praised for a
school report which said ‘satisfactory’. I am confident that we, and others,
will respond faster and more effectively to the AIU’s recommendations.

Secondly, the AIU notes evidence of high quality audit work at some firms and
weaknesses at some firms but provides no significant distinction between the
criticisms of the Big Four and of some (but not all) of the other firms. This is
a positive message about audit quality and suggests that some of the other firms
have audit quality at least as good as that of the Big Four. It is perhaps
disappointing the AIU does not provide the help that audit committees need by
identifying the ‘best of breed’ – be they Big Four or others.

Unfortunately the AIU suggests that some firms are struggling to cope with
the increased waves of regulation because they lack resources to implement
change. While this may be true for some firms the AIU has recognised that the
‘significant other’ firms are not a homogeneous group. It is therefore
inappropriate to make assumptions about the other firms as a whole. There are
important differences.

In any event, bigger does not necessarily mean better and certainly not in
the case of audit quality. Indeed, as noted above, despite

their significant resources the Big Four have only managed ‘satisfactory
progress’.

There are firms other than the Big Four, my own included, who have the
knowledge, expertise, experience, geographical capabilities and the people to
deliver audits to a standard which absolutely matches, and in some cases
exceeds, Big Four quality.

It is our unrelenting focus on quality people delivering quality audits that
will ensure we can provide further choice to the market place.

Jeremy Newman is managing partner at BDO Stoy Hayward