The International Federation of Accountants (IFAC) has responded to the UK Competition Commission’s provisional statutory audit market concentration findings, agreeing with some of the CC remedies, but questioning the benefit cost ratio of mandatory tendering and rotation.
On the topic of mandatory tendering, IFAC said it was strongly opposed to the CC’s proposal that all tendering firms would have access to the files of the incumbent auditor, as it would contradict the basic confidentiality as a principle.
The response also claimed that the CC failed to take into consideration several costs to mandatory tendering, such as the potentially larger number of audit firms submitting bids, which organisations would then need to assess.
IFAC also felt mandatory audit rotation would "have no impact on the barriers to entry that are perceived to exist between the Big Four firms and other firms," and argued that the impact on audit quality of audit engagement partner rotation, which was introduced a decade ago, has yet to be assessed.
Additionally IFAC argued that it is not necessary to expand the frequency or remit of audit quality review team (AQRT) reporting, and said that any increase in the respect should be funded by shareholders, as it would be for their benefit.
However, IFAC did support a number of the CC proposed remedies, such as the prohibition of contractual clauses in template documents limiting choice to the Big Four, enhanced shareholder-auditor engagement and strengthening accountability of the external auditor to the audit committee."
More generally, IFAC noted that "at times, there seems to be some confusion between measures that aim to address audit market and competition issues, and those which aim to address audit quality and independence issues."
IFAC also took issue with the fact that some of the reforms proposed would have some level of extra-territorial impact, saying "it is unfortunate that nationalistic and fragmented responses to the problems confronting the global economy are becoming more common."
Finally, IFAC concluded that, whilst agreeing that enhancing audit quality should be the focus of regulatory reforms, there comes a point where the costs of development exceed the benefits, and also "it is not clear that there is sufficient evidence to support the notion that measures aimed at lowering prices or providing greater choice will lead to enhanced audit quality."
The CC issued its provisional findings in late February and is expected to issue a final report with potential remedies to increase competition in the autumn.
CC provisional findings responses see Big Four and mid-tier split