Audit competition and choice: all talk and no action

All talk and no actionTo the observer, it must seem like the audit
competition and choice debate has been grinding on for a long time.

From its first rumblings, to the fervour generated by the Oxera report, to
the public meetings as the consultation has progressed, opinions have been in
plentiful supply.

The firms who want to bring a new dimension to the profession (including my
own) have not tired in putting forward their views and making their concerns
known.

Our opposite numbers at the Big Four have worked just as hard at countering
them.

In addition, companies and other key stakeholders have spoken up on behalf of
end-users. None of these words have been wasted: resolution of this issue is
fundamental to the future shape and direction of the audit profession, and
moreover, to the health and vitality of the financial system it serves.

But how do we move on from the rhetoric? How do we make sure that the outcome
of the FRC/MPG initiative rings true with the original purpose?

The focus now needs to be on taking constructive action. We need to
prioritise measures that will have the greatest impact in practice and help
bring about the reforms that will ultimately lead to a better market for all
stakeholders.

More frequent audit tendering has to be the foremost among these: without a
significant increase in the number of tenders and auditor changes it will be
almost impossible to redress the current levels of concentration.

This should go hand-in-hand with a more open selection process. All
interested firms should be invited to submit a brief preliminary proposal, and a
shortlist can then be drawn up of firms to submit a full proposal.

Providing more information in audit committee reports would be another
positive measure. This could include when the company’s auditor was first
appointed; the company’s policy on audit tendering, and when the audit was last
put to tender. Banks and brokers could also take steps to eliminate the
perceived bias that it is sometimes felt they exert in favour of the Big Four.
Finally, more consideration should be given to joint audit and independent study
carried out into its merits during these tender discussions.

A final report and recommendations are due by the end of the year. Let’s hope
that a down-to-business mindset prevails as we move into September and prompts a
shift in gears so we ¬ audit firms and companies together – can seize the chance
for positive action.

David Herbinet is head of public interest markets at Mazars