The Financial Reporting Council's (FRC's) pronouncements on quality and choice in the audit industry, published earlier this month, did not play well within the accountancy profession.
Recommendations in the report from the FRC Market Participants Group included basing choice on proper assessments of the quality of audit firms, and a report launched last week was aimed at providing a proper framework for assessing that quality.
Criticism of the contents of both documents centred on a belief that neither went far enough. However, David Herbinet, partner at international accountancy firm Mazars and member of the Market Participants Group, begs to differ from the consensus verdict.
He told The Herald last week that the reports, taken together, represent a major set-back for defenders of the status quo, and should be seen as a clarion call for greater competition.
In their defence, the Big Four have argued that the market provides more than adequate competition. Yet recent independent surveys have found switching rates to be at a new all-time low.
One study, by Financial Director magazine, found just six FTSE-350 firms changed auditor during the last year. As Herbinet points out: "A FTSE-100 auditor can expect to remain in place for a staggering 48 years, or 36 years at FTSE-350 level."
Unsurprisingly in a highly concentrated market, this often results in sharp increases in audit fees; and, Herbinet says, that is why in this case market forces have begun to test the regulators' patience.
"Market-led measures are generally favoured, but need to produce real change if they are to be considered an adequate solution."
So the regulators' main challenge is to encourage more audit tenders, and to open these to a wider range of firms.
This has led to other challenging issues: "There is an institutional perception from key stakeholders that bigger is better. Clearly this is not necessarily the case. Simply finding another firm to create a Big Five or a Big Six is not the best way to create more choice and innovation in the market."
That leads to the issue of cost to the accountant and not just the client.
"We will no doubt hear from certain quarters that audit tenders are expensive," Herbinet says. "But done well, they can deliver real value."
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