Leader: Minimal audit change leaves quality question unanswered
UK and EU audit market interventions lack the oomph to create a huge impact - and so quality remains an issue, says Kevin Reed
THE OLD SAYING, ‘the more things change, the more they stay the same’ seems depressingly apt for audit.
There are plenty of reasons why the Big Four firms, and dissidents Grant Thornton and BDO, will see the EU’s reform of the audit regime as anything but.
Major audit players are already coming to terms with edicts from closer to home, namely the Competition Commission outlining mandatory tendering every ten years. The EU has now planned for mandatory rotation over the same period, with the option of retaining the auditor for another ten years.
It seems inconceivable that few of the ten-year tenders would have been anything but an auditor-swapping exercise, so lobbying and negotiations within Brussels have effectively led to a following of the UK’s track.
For major businesses to have held the same auditor for decades on end is frankly embarrassing, and a huge negating factor to any Big Four argument that ‘audit quality’ is key. A reasonable balance must be struck between client distance and client understanding – that has to be the premise upon which quality is built.
Does that mean that the EU’s market intervention – to positively impact on its main target of ‘improved audit quality’ – will achieve its goal? Perhaps it depends on who picks up the audit work, and whether the outside world sees an improvement – whatever that may be.
Having seen nascent moves among the big listed companies, there seems little appetite in reaching out to any of those interested in growing market share: namely BDO; Grant Thornton; Baker Tilly; or Mazars. Any movement will be glacial, and those outside the Big Four can’t move at breakneck pace anyway.
While the UK and EU mix of proposals around the provision (or not) of non-audit services could prove very interesting in providing a footing for the next tier to bulk up – creating a framework for ‘what is a good audit’ has been side-tracked – only the audit firms make noises about what that means, few others seem interested until a company goes to the wall.
Perhaps the current global efforts at audit transparency through greater disclosure will achieve the same thing, by showing us all that the audit process is robust and valuable.
But for those looking at market upheaval to shake things up – they will be sorely disappointed.
Kevin Reed is editor of both Accountancy Age and Financial Director