Leading mid-tier accounting networks have joined forces to call for intervention in the audit market saying “no action is not an option”.
Following the European Commission’s green paper, Audit Policy: Lessons from the Crisis, BDO, Grant Thornton International, Mazars and RSM International have jointly agreed there is an urgent need to enhance competition and choice to tackle the heavily concentrated audit market.
The global firms said a new approach is needed to tackle concentration and have proposed three actions:
- Banning contractual clauses or other bias in favour of the Big Four firms;
- Regular reassessment of audit appointments by audit committees; and,
- Global assessments of significant mergers or acquisitions particularly by the Big Four.
An example of a significant Big Four acquisition causing further concentration in the market is Ernst & Young’s buyout of the largest mid-tier firm in Brazil, Terco, which was previously affiliated with Grant Thornton.
In their statement BDO, Grant Thornton, Mazars and RSM also called for a “truly” single audit market that would help auditors work more easily across borders and be registered and supervised on a pan-European basis.
The four also support enhancing the relevance of auditing by reviewing how audit findings are reported, the inclusion of more information on how risks are identified and assessed, as well as offering a greater level of assurance on narrative reporting “especially regarding the management and governance bodies’ views on the uncertainties facing the business”.
“There is also significant merit in considering the progressive implementation of joint audits or consortia audits, which may come in various forms, in order to strengthen confidence in the audit and improve the diversification of the audit market,” the group said.
This is the first time major mid-tier firms have united to call for regulatory intervention to improve choice in the market. This change of tact indicates the mid-tier have lost faith in a market-led solution.
“We welcome the initiative taken by the European Commission with its wide ranging review covering all aspects of the audit profession, as well as the international leadership it has offered. We strongly support the view that there is an urgent need for an integrated programme of reforms and a necessity for regulatory action,” they said.
Tomorrow, the International Accounting Bulletin will publish an exclusive interview with the global leaders of BDO, Grant Thornton International, RSM International and Mazars.