THE HOUSE OF LORDS’ recent pronouncements on audit got the whole industry in a lather, and pushed a number of stakeholders to express strongly held views.
Competition was one of the biggest points of contention; some agreed with the Lords that lack of it is stifling the industry and warrants Office of Fair Trading investigation, while others summarily dismissed the issue, arguing that concentration and lack of choice is the real concern.
Jeremy Newman, head of BDO International, said restricted choice equates to lack of competition by definition, and warned the problem is a global phenomenon. He suggested the debate has been reframed in the interests of the Big Four to deny the competition question, and argued structural change is essential. “The Big Four don’t have a monopoly on wisdom, although their dominance makes people think they do”, he insisted.
Newman, who is focusing on building BDO’s reach in emerging markets, said these structural issues must be resolved before other challenges – such as auditor scepticism and corporate governance – can be addressed.
He pointed to consultations for the European Commission’s green paper on audit as proof of the depth of concern in the industry. “One of the discussion days had a single session on concentration scheduled in, but it ended up taking over all four sessions, so great is the worry among stakeholders”.
What is certain is that Michel Barnier, European commissioner for internal markets and services, is convinced that something is wrong with competition. His work so far reveals a fondness for options such as mandatory rotation and joint auditing that is worrying larger firms, and it seems unlikely that he will be deterred.
Surprisingly, not all second tier firms agree with Barnier and the BDO man. Some stood shoulder to shoulder with the Big Four in declaring concentration and lack of choice is the main market constraint, and academics like Stella Fearnley drew similar conclusions.
There is nothing new in stakeholders using language to restructures debates in their favour, and so the words used to frame a possible OFT investigation will be critical. It is not yet known whether they will address the issue – that is for the board to decide later this month – but if they do, their terms of reference will reveal where the watchdog stands on competition, concentration, and lexicological minefield between.
Rose Orlik is Accountancy Age’s audit and accounting standards reporter
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