Yesterday, I and the CEOs of Grant Thornton, BDO, Mazars, and Rödl & Partners, along with the CEO of EGIAN (European Group of International Accounting Networks) met with MEPs in Brussels to discuss mid-tier accountancy firm’s positions on EC audit proposals.
Back in October 2010, the EU launched a consultation to improve the audit market and to specifically address the dominance of the Big Four firms.
The EU Commission highlighted a number of weaknesses in the market including:
- a lack of choice for audit clients resulting from high concentration levels;
- systemic risk if one of the big firms were to fail;
- possible conflicts of interest around the independence of auditors; and
- doubts around the credibility and reliability of audited financial statements for banks and other public interest entities (PIEs).
Yesterday’s meetings were a welcome opportunity to discuss with MEPs that status quo in the EU audit market it not an option. In doing so we presented a balanced package of measures designed to effectively address the concentration within the audit market and thereby advance public interest:
- Two or more audit firms should be involved in the audits of PIEs;
- Although excessive audit firm tenure needs to be addressed, mandatory audit firm rotation alone will not achieve the desired objectives, especially if rotation is allowed to take place among the dominant firms;
- We reject assertions that only the current dominant firms can provide audit services to PIEs. There are a number of additional global networks which have the global reach, consistent audit methodologies and audit quality to compete;
- We support proposals to prohibit restrictive clauses in tendering and other documents that limit the choice of firms and we support measures resulting in greater audit committee and shareholder involvement in a fully transparent auditor appointment process.
In addition to the workshop with the MEPs, Bob Dohrer and I met with several other MEPs to discuss our position on the EC audit proposals. We will continue to ensure that our position is explained to EU policy makers, with particular focus on advancing the public interest, and greater diversity and transparency in the market.
The context is very much explained by this recent and fascinating BBC programme In Businessexamining the Big Four's global domination of auditing and reporting on the measures being taken by Chinese Government and the EU Commission to open up the market to smaller firms. The programme is an insightful analysis of the current situation and very useful for anyone who wants to understand why it is both necessary and logical to reduce the current state of excessive market concentration.
We believe change needs to happen. The presenter, Peter Day, makes many points to support this position:
“Preserving the status quo may be dangerous when it might put at risk the credibility of accounts, the building blocks of the continued health of capitalist public companies.
“And that is where the arcane matter of audit practice becomes a matter of great public interest, and why the current rash of inquiries into accounting and auditing is so important.
“As the financial crisis has shown, we still need to understand far more about how companies are running their businesses. The auditors ought to be able to help.”
I firmly believe that this is a once in a lifetime opportunity. We will keep fighting hard to ensure this window of opportunity does not close before we affect meaningful change.