Happy New Year for auditors?

It is safe to say that 2005 has been a very good year for the firms. A year
that started out with the threat of extinction hanging over one of the Big Four,
as Equitable Life’s £2bn claim against Ernst & Young reached court, ended
with all four feeling a lot more secure about their futures.

It quickly became clear that the Equitable case was built on shaky
foundations and unlikely to be catastrophic to E&Y, a view borne out when
the life assurer dropped the action in September.

In the meantime, the audit profession managed to convince the government to
allow proportionate liability to be negotiated with clients, ensuring the
likelihood of such massive claims appearing again is significantly reduced. Even
the proposed criminal offence for a reckless audit had its jail sentence penalty
removed and replaced with a fine.

On top of that, fee income was up across the board, on the back of audit and
assurance work undertaken from section 404 of the Sarbanes-Oxley Act and the
impending first annual reports under IFRS.

All in all, not a bad 12 months. But as Christmas draws to a close and New
Year’s Eve arrives, thoughts will inevitably turn to 2006, and the party
atmosphere may become a little more sober.

Things aren’t looking as rosy for Big Four auditors this coming annum. The
amount of fees from Sarbox and IFRS is likely to drop as companies get to grips
with the rules. Add to that mid-tier firms starting to encroach on the Big
Four’s patch, a slowing economy and work that has been lost by the scrapping of
the mandatory operating and financial review, and the firms could be struggling
to register the same levels of growth this time next year.

But we don’t want to spoil the festive cheer just now, so let’s hope it turns
out to be a Happy New Year for the profession after all.

Paul Grant edits the audit page

Related reading