The motive for this arrangement is simple delay checking out the price tag
until you have made a choice on the basis of quality and you don’t end up with
After all, you get what you pay for and the companies are looking to ensure
that audit quality is guaranteed. There’ll be no more cut-price work that skimps
on the important stuff in favour of just ticking the boxes as quickly as
possible for as little as possible.
The underlying motive, of course, is to get around lowballing, in which
auditors were supposed to bid low on audit prices in order to win more lucrative
work providing other services. The sealed envelopes send a signal loud and clear
that this can no longer happen.
Odd thing is, the envelopes seem a little redundant. The whole world is so
sensitive about conflicts of interest in the wake of Enron and WorldCom that
lowballing seems unthinkable now.
Finance directors, as well as audit committee chairmen, have made a point of
telling their auditors that they can do the checking, but they won’t be getting
so much of the extra value work like tax or consultancy the stuff that really
pulls in the cash.
That makes the envelopes rather empty a show rather than a procedure with
any real consequence. But then the show is sometimes what matters. People,
especially investors, appreciate being reassured. If a bit of Basildon Bond
manages that, then why not?
Gavin Hinks is editor of Accountancy Age