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November 1, 2010

Mid-tier supports audit market intervention: Lords enquiry

Mid-tier audit firms have told the UK’s House of Lords economic affairs committee that intervention is needed to tackle concentration in the audit market.

BDO and Grant Thornton said they are willing to invest in order to build the size and scale required to audit FTSE 100 companies, however, they believe that getting those opportunities under current conditions is difficult.

BDO managing partner Simon Michaels said the UK has a great opportunity to take the lead in the EU reform of the audit market.

“We are very happy to invest to get the EC audits but we will do that if we only have the opportunity to get this work,” said Grant Thornton head of external professional affairs Steve Naslin.

RSM Tenon finance director Russell McBurnie also bemoaned a lack of opportunity, noting: “Clients want firms to have experience, however we can’t offer the experience if the opportunity is not given to the mid-tier.”

The mid-tier said there is evidence that shows a growing concern over the systematic risk of market concentration and that regulatory intervention should be considered in light of this risk.

Mazars strongly suggested joint audits as the solution for the market and the firm’s head of corporate and public interest markets David Herbinet believes this has proven to be cost-effective and efficient.

However, audit rotation was met with skepticism from other parties. It is often felt that joint audits add unnecessary bureaucracy to the process.

Although the mid-tier would like a greater slice of the FTSE pie, they accept at present only the Big Four are able to audit banks.

RSM Tenon, BDO, Grant Thornton and Mazars were all against the suggestion to introduce mandatory re-tendering with one of the main arguments being that the buying pattern should to be changed.

The economics affairs committee is still to hear the opinions of the Big Four.

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