UK professional accountancy bodies have defended the audit profession although warned reform could be necessary to protect standards and help restore public confidence, a British government investigation has heard.
The House of Lords economic affairs committee asked leaders of the four largest UK accountancy institutes their views on Big Four market concentration, the ability of auditors to provide non-audit services for audit clients, the adoption of joint audits, and whether the profession had become a compliance driven ‘box-ticking’ process.
Restrictive lending and joint audits
Institute leaders said they do not believe market concentration is threatening the financial services sector and the Big Four, due to their size, is best placed to audit the largest listed UK companies and banks.
Association of Certified Chartered Accountants chief executive Helen Brand said removing restrictive lending clauses that force companies to choose a Big Four firm would help improve choice in the marketplace.
Institute leaders are strongly opposed to mandatory joint audits, saying it is a costly and inefficient way of conducting audits.
Institute of Chartered Accountants in Scotland senior vice-president Ian McLaren said joint audits can become a bureaucratic nightmare and firms can easily start playing against each other.
Narrative reporting and corporate governance
Committee member Lord Lawson said all services should be offered in the market, with the stipulation that no client should be receiving all their services from one audit firm.
Institute of Chartered Accountants in England and Wales executive director Robert
Hodgkinson agreed, adding that it was important to enforce audit objectivity. He proposed an open debate on the issue, fearing that imposing regulatory restrictions would only hide the issue behind a ‘box-ticking’ process.
Chartered Institute of Management Accountants chief executive Charles Tilley said that assurance over narrative reporting – the front end of the accounts – could offer potential opportunities for smaller firms.
McLaren suggested the issues of auditor’s liability and corporate governance would need to be examined more closely, especially if the scope of the audit is expanded.
The committee will hear evidence from the mid-tier and Big Four in the coming weeks.