Regulation is beginning to drive market expectations within the
accounting industry, according to the new leader of the European
Group of International Accounting Networks. Chairman Andrew Brown
speaks to IAB about how the body is tracking regulatory
developments and other pertinent issues.

The European Group of International Accounting Networks (EGIAN)
is a lobby group of non-Big Four professional services networks
that has 21 members. The total combined fee income of members
worldwide in 2006 was $26 billion, while within Europe the total
combined fee income was $7.6 billion.

Brown says the major issue for EGIAN in the coming years will be
the assimilation of regulatory forces and making sure the group has
an input. “Obviously the European Commission is fundamental and we
are going to see this year the national implementations of the
Eighth Directive. There will be issues that come up where we may
have to speak to the commission on certain areas of
implementation,” Brown says.

“The biggest challenge for the commission is to monitor the
implementation [of the directive] in all 27 [EU member] countries.
Obviously, we want that to be done in as harmonised a way as
possible because the more there is harmonisation of systems in each
country then the easier it is for us to monitor the activities of
our members,” Brown explains. “Examples of that are oversight and
quality control systems. We would like to rely more on national
oversight systems, we always have to do our own things but the more
the oversight systems across Europe are harmonised the easier that
becomes for us.”

EC influence

In regards to establishing oversight within Europe, EGIAN has been
closely monitoring debate over to what extent the EC will influence
how national bodies should carry out inspections. Brown adds the US
Public Company Accounting Oversight Board’s current consultation on
full reliance of third-country regulators is of interest to EGIAN:
“We have many more layers of oversight and inspection – it’s quite
an expensive process to make people, files [and other resources] available. So the more people can co-operate at that government
level, the better for us.”

Brown’s day job is international business projects director for
Baker Tilly International. There is no time limit on his term as
EGIAN chair, which he says takes up about two days of his time each
month, but he expects to stay in the role for two to three years.
“I’m looking forward to the next couple of years to see whether we
can move the whole concept of the middle-tier networks more to the
regulators and hence to the market, because I think more people
need to know that there are alternatives to the Big Four in certain
parts of the market. We are limited to what we can do for the large
ticket audits, but there’s a lot of other business around,” Brown
says.

Proportionate support

EGIAN has defined positions on a number of industry issues
including auditor liability, competition and choice, and the
network definition debate. Brown explains that EGIAN is in favour
of proportional liability. “Liability is a key issue for us and it
does have some influence on our views of the opening up the audit
market,” he says. Regarding competition and choice, he says there
are limitations in what EGIAN members can do at the larger end of
the audit market. “From a UK perspective, you look at Baker Tilly,
Grant Thornton, BDO, and they are pretty big organisations [which] could feel in the local market that they are substantial, but
everyone doesn’t have that everywhere. This is where the Big Four
have the big advantage,” he says.

“I personally lived through the big expansion period of the Big
Four in the end of the 1960s through to the 1980s and it was a
fairly gradual process. The Big Four grew up as their multinational
clients grew up – they followed their clients. So it’s been a
gradual process [and] you’re not going to get a big market boom
among the second-tier… Consolidation of mid-tier firms and mid-tier
networks will not affect the Big Four dominance; it will only alter
the relative positions of the mid-tier. We are really talking about
different animals, but there are lots of parts of the market where
we do compete head on with the Big Four, including the public
sector.”

Brown explains that the network definition is a topical issue that
varies from market to market. “The big unknown quantity is how will
national member states decide whether or not a member in that
country is a member of a network or not,” he says. “It may be you
might have one of our members who doesn’t want to be a network and
wants to be an association but the oversight system in one country
may decide that the member is a member of a network and ask them to
comply. So it’s a bit of an unknown quantity at the moment.”

Recruitment is another key issue for EGIAN members and Brown says
many firms agree this is the greatest constraint they have on
expansion.

Focussing on specialist services is also gaining in popularity and
Brown predicts that mid-tier firms may look to acquire boutique
practices as a way into specialist markets. “Audit will always
remain a pretty key service but it may be the expansion may come
from specialist services,” Brown explains.

Topical issues that Brown does not believe will have much impact on
EGIAN members include firm ownership rules and inter-country
mergers, such as the one that created KPMG Europe. “I think
inter-country mergers… are unlikely to happen in the EGIAN members.
I think more generally our members are more focussed on the local
market. We may have greater regional co-operation,” Brown
explains.