Competition Commission takes a realistic, but relatively unexciting, view on opening up the audit market
THOSE WANTING audit market revolution are likely to be disappointed.
The Competition Commission today says that the market isn’t working well, and changes are required. However, no-one would say that it’s proposals are anything more than relatively gentle – direct and disruptive intervention it ain’t.
The arguments for evolution rather than revolution are strong. Grant Thornton and BDO wouldn’t really want audit work and tendering foisted upon them. They want the channels to market opened up, not made more onerous.
The commission is right to call for investors to step up to the plate. It is imperative that they get more involved in the audit process, rather than continue with this strange abdication of responsibility that sees management effectively pick and choose their auditor. Investor activism has certainly made boards sit up and take note in recent years – but it would be nice for the investment community to be more proactive, as opposed to indignant reaction.
While the commission is seemingly less concerned about the proliferation of ex-Big Four in regulatory roles, what must be highlighted is the seemingly unbreakable circle of Big Four partners moving into FD roles, who are subsequently very ‘comfortable’ having a Big Four firm in as auditor. But this is a chicken and egg situation – non-Big Four firms picking up bigger audits would see boards more comfortable picking non-Big Four accountants into top finance roles.
Another hurdle to overcome is that of making audit more forward-facing. This will inevitably involve more audit work to be undertaken, and greater risk of litigation. Such a move seems more likely to block entrants into the market.
But ultimately the commission is right – it will take a series of measures that help to change buying behaviour, and it won’t happen overnight.
Kevin Reed is editor of Accountancy Age and Financial Director