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December 18, 2011

Split views over Barnier proposals

In the immediate aftermath of Barnier’s announcement, The Accountant approached leaders and public policy experts from the Big Four and mid-tier to gather their initial thoughts about the EC’s audit reform proposals.

Photograph of Pauline Wallace, PwCPAULINE WALLACE, HEAD OF UK PUBLIC POLICY, PWC

Joint audit

“It’s clear that they have seen sense over joint audit which is absolutely what no country appears to want other than France. Any company already has the option to have a joint audit and it is quite telling to see how many outside France use it.

“So I think it is sensible that they’ve listened to the concerns that were being expressed by the industry on this proposal- but there is a lot in the reforms that does not respond to any of the issues that have been highlighted.”

Banning non-audit services

“I’m still struggling with this disconnect because there isn’t any evidence at all that somehow providing non-audit services to audit clients is going to impair the quality of your audit.

“I must admit, it is a puzzle to me as why people get so obsessed on this subject, it’s purely perception.

“If you start imposing a cap on essential audit-related activities then you’ve lost the logic inherent in the process of providing an effective overall service.

“What is the benefit in putting a cap on the amount of fees derived from essential services?”

Mandatory rotation

“Mandatory rotation is one of the things that is going to affect audit quality. Six years is an incredibly short time and mandatory rotation is a flawed concept that will add cost, and not only cost, but also the less quantifiable cost in terms of the impact on audit quality.

“You are actually constraining the market: a very bizarre notion that if you are looking at market concentration you make it more concentrated by taking one of the players out of the market.”

 

Photograph of Martin van Roekel, BDOMARTIN VAN ROEKEL, BDO, GLOBAL CHIEF EXECUTIVE

Joint audit

“The [removal of mandatory] joint audit is something we would have liked to be included, as we are of the opinion that it would contribute to quality and innovation and it would’ve been able to realise a significant change in the market structure that, according to our opinion, really needs to be changed.”

Mandatory rotation

“Mandatory firm rotation: looking at the present proposal it would be very, very challenging.

“Six years is a relatively short term and, of course, there is the possibility of nine years with joint audit but it’ll still be a serious challenge for many audit firms.

“The combination with joint audit, as it was proposed originally, mandatory rotation would’ve been a challenge but right now is even more of a challenge.

“It has to do with building up relations and also if you have to rotate every six years it means quite a lot of extra work for auditors dealing with tenders and that will be quite a demanding job for many firms to know that every six years they will lose the client.”

Banning non-audit services

“I don’t think it will be a big change, although it will be an influence to their [Big Four] business, although I don’t know to what extent it will have a serious influence as normally the very large firms have a serious split between audit and advisory.

“The audit only firm is still included and this, for sure, can have a positive contribution to change the structure of the audit market.”

 

Photograph of Frank Arford, Crowe Horwath InternationalCROWE HORWATH INTERNATIONAL CEO FRANK ARFORD (RIGHT) AND AUDIT AND ACCOUNTING DIRECTOR DAVID CHITTY (BELOW RIGHT)

Joint audit

“We’ve supported joint audit requirement and it’s unfortunate that this has been removed.

“I understand that there is an incentive but this is quite different from Photograph of David Chitty, Crowe Horwath Internationalhaving a requirement and I’m not so sure that an incentive like that will have much of an impact on audit market concentration.

“Reducing concentration is a good thing and we felt better [at the idea of] becoming more of a participant in the PIE audits via a joint audit requirement.”

Mandatory rotation

“We were not in favour of mandatory rotation except that over a long period of time, such as 20 years, we can understand that the public perception of independence can be improved through rotation, but the six years period is a point too far.

“It is possible that this incentive to extend this audit mandatory rotation from 6 to 9 years would encourage some listed companies to follow joint audit, but probably not. We would rather see joint audit as a requirement. I suspect there’ll be a lot of debate and by the time the regulation becomes effective and so we do not expect that the incentive will have much of an impact.”

Concentration

“The EC have specified that their aim was to enhance audit quality as a result of having more participants in the public company audit market: the way the measures for market are now presented means that there will be less of a shift in concentration and therefore will not achieve the desired aim.”

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