At the latest Financial Reporting Council’s meeting to discuss choice in the
UK audit market, the perennial question of whether a glass is perceived to be
half full or half empty sprang to mind.
The long awaited meeting showed the overwhelming majority of participants in
this debate have an appetite for change. Not only do the majority of
stakeholders welcome changes in terms of the number of choices available, but
the question of the link with audit quality has also entered the debate.
Increased competition within the audit market should raise the bar on audit
For real progress to be made in this area, the FRC must act upon the feedback
they received. There was a clear consensus from the audience that the FRC should
place greater emphasis on evaluating and pursuing measures which are likely to
work. Whether such strategies are market led or require intervention are
The current barriers to entry in the FTSE 350 audit market are such that
effective measures for the FRC to recommend are likely to require some form of
More specifically, the introduction of joint audit, a system whereby accounts
are audited jointly by two firms, is a change which would favour both the
profession as a whole and the public markets we seek to serve.
While its introduction may require intervention, since this practice is
already possible in the UK, the amount required and therefore disruption needed
for its success would be limited. The first challenge of such a strategy is to
demystify the concept and educate all stakeholders (including members of the
profession) on the benefits and risks involved in joint audit.
Alongside efforts to increase choice within the audit market, efforts must be
made to demonstrate to stakeholders what choice already exists. Extraordinary
capabilities, many of which rival those of their larger counterparts, are to be
found outside the Big Four.
If greater choice within the audit market is to be created, all firms must
communicate their capabilities more effectively and the market (particularly FDs
and audit committees) must demonstrate their willingness to engage with this
Change cannot and should not happen overnight but quarter one of 2007 seems a
long way off. Anxieties over the drive for change getting lost in language of
debate will be fully justified if the FRC does not set clear milestones together
with definitions of success throughout the process.
David Herbinet is head of public interest markets at Mazars
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