Europe should look at ensuring a level playing field on corporate governance rules before ruling on audit reform

Clearly the big news this month was the UK’s Competition Commission (CC) unveiling its long-awaited provisional findings regarding statutory audit market concentration (read full report). The document looked at the introduction of some controversial remedies including – as expected – mandatory firm rotation and re-tendering.

In the background, the European Parliament is engaged in its own debate, which many expect to be heavily influenced by the CC’s findings. By the time it has made its feelings known one way or the other, many countries like the UK will have made their voices heard, or even gone as far as to implement their own remedies – such as in the Netherlands, where we have seen the adoption of mandatory firm rotation.

While it’s clear some of the remedies being discussed in Europe would mean a major shake-up for the UK, German or French audit markets, it’s not so clear how they would affect Poland, the fastest growing and sixth largest economy in Europe.

As IAB conducted its Poland survey once again following a three year gap, it found the domestic audit market on its knees, with a culture of very short audit engagements of one to three years, price-driven tenders, and low client loyalty. In short, a highly commoditised audit market.

This, coupled with the effects of the global financial crisis, has led to Polish firm leaders questioning audit quality and corporate governance, and to worry about the sustainability of the current ‘price discounting’ culture.

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So where does the Polish experience fit into the European context, in light of the EU audit reform discussion?
Well, despite the all-too-frequent retendering practices that have become endemic, the Polish market is still highly concentrated, with tenders only building further opportunities for fee discounting, according to Polish firm leaders speaking to the IAB.

As such at this stage, Polish firms find the audit reform debates far removed from their everyday reality. While the draft documents and debates so far have talked about strengthening corporate governance and audit committees in the major European economies, many important markets like Poland still have some way to go before their standards in these areas are even at the same base line as their more mature counterparts.

Perhaps ensuring consistent corporate governance rules should become a greater priority across Europe, before pan-EU audit concentration remedies are introduced? Maybe decisions over remedies really should be left to national regulators such as the CC.
Whatever the resolutions on the European level will be, more attention should be paid to some of the very real struggles going on in European markets which, if not addressed, have the potential to endanger the reputation of the profession and compromise professional standards due to pricing pressures. Read the full Poland report here.

IAB Awards 2013 winners revealed
This year was only the second in which we have held the IAB Awards, but with nearly twice as many in attendance at Chartered Accountants’ Hall in Moorgate, including many global leaders of the profession, we look to be set for an even bigger and better third year in 2014.
I’d like to congratulate all this year’s winners on an excellent performance, thank all the nominees for their efforts, and show my appreciation to our sponsor Aon, without whose support the event would not have been possible. See here for the full coverage and the winners list.

Ana Gyorkos