‘We found no compelling need to take action.’ Those are the words of the US
Government Accountability Office (GAO) after looking into audit choice in the
The report, out last week, concluded that in the absence of ‘limited
evidence’ the current concentrated audit market has had no adverse impact and
that there is a ‘general lack’ of any decent suggestions to put things right.
The problem with the GAO’s report lies in those arguments. First it says there’s
no problem, but then there is an underlying admission that there is, by saying
that no solutions could be found. No solution is needed if there is no problem.
The GAO must know there is a problem because the public companies is surveyed
told it so. Around 60% said there was no adequate choice among large audit
firms. Respondents also declared that the disappearance of a large firm would
reduce choice and possibly increase audit fees.
Despite these poignant pieces of evidence, the GAO concluded that, because
there is no proof of reduced choice pushing up fees or proof of a fall in audit
quality, nothing needs to be done. Readers would be excused for finding the
GAO’s report contradictory and short-sighted.
Quite rightly, the UK has concluded there is an issue to be resolved, the
question here was how best to deal with it. Fortunately for the US, the GAO’s
report will not be the last word on the matter. Former SEC chief Arthur Levitt
is heading a special committee examining audit choice for the US Treasury.
Interestingly, the GAO may have given this group a lead by identifying access
to capital and difficult state law as hindrances to building another large firm.
We can only wait to see what Levitt and his fellow members on the advisory
committee will make of them.
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