With the debate on audit reform hitherto dominated by the accounting profession, a discussion between EGIAN chair Andrew Brown and Russell Bedford International chairman Geoff Goodyear called for shareholders’ (and clients’) views to be heard.
A live discussion held between EGIAN chair Andrew Brown and Russell Bedford International chairman Geoff Goodyear has yielded some insights into the current status of the Barnier proposals on audit reform.
Speaking at a press conference held at the Russell Bedford International Tax & European Conference, Copenhagen on 14 May 2012, Brown was clear that market forces alone are unlikely to effect any greater degree of genuine market access for the mid-tier audit firms. Big Four market dominance will increase exponentially over the next decade, he claims, and only regulatory intervention is likely to deliver any greater access for the mid-tier at the top end of the listed markets. Would this situation, he asked, be tolerated in any other sector? ‘If we make no changes now, where will we be in 10 or 20 years? The gap will get wider and wider.’ This is a view echoed by Goodyear, who expressed some frustration at shareholders’ apparently limited awareness of the harm he believes is being caused by the current status quo: ‘The market is stagnant … shareholders really don’t understand how they are being short-changed.’
Brown anticipates no major developments before next year, however. While he suggests the European Parliament is keen to publish its conclusions after the UK’s Competition Commission, this is unlikely to happen before October next year.
Joint audit: EGIAN hopeful of a return to the agenda?
Responding to a question on potential revisions to the Barnier proposals, Brown gave a strong indication that, as far as EGIAN is concerned, joint audits could well return to the agenda. Many MEPs, he argued, are increasingly conscious that ‘something has to be done’; and many are looking to joint audits as part of a package of achieving greater market access. ‘There is a growing realisation that there are issues to be addressed in the audit market. And that’s a big change from two years ago.’
EGIAN, as is well known, sees joint audits as a possible mechanism for achieving better market access; Goodyear, however sees rotation and compulsory tendering as more immediate solutions, pointing to the Big Four’s far lesser dominance in the public sector – the direct result, he believes, of strict tendering requirements.
Shareholder (and client) views should enter the debate
Returning to a point he had raised repeatedly on the publication of the Barnier proposals, Geoff Goodyear again expressed frustration that debate on audit reform remains confined mainly to the profession, with shareholders apparently unaware of the real implications of current limitations on choice. This position Brown suggests is now changing: ‘What the Barnier proposals have done is to create a ferocious debate on the current position of the audit market. Views have changed; people previously not involved in the debate now realise there are issues to be tackled.’
Why don't the mid-tier firms invest and expand?
Responding to a question on the likelihood of further market concentration, Brown was quick to point out that such risks are further exacerbated at the bottom of the market. Experience in Scotland, he claimed, suggests there is a greater risk that the smallest firms will simply withdraw from the audit market altogether. According to Brown, for some at least, ‘it’s simply too expensive to stay in. Scotland now has some cities with no audit capacity at all.’ Big Four market dominance, moreover, has a further impact in discouraging investment by the mid-tier. ‘Why invest in a market where there is no market? No one is going to invest in a market where you have to wait 50 years for a chance to bid … if you don’t have a vibrant market, you don’t have innovation.’
A recording of the online broadcast of the press conference can be viewed at https://vimeo.com/42122350 .