Tag Archive | "BDO Global"

There needs to be more competition in the audit market place

The Big Four audit firms have made it virtually impossible for smaller firms to have a fair chance, according to BDO.

The mid-tier firm made the statement in its written evidence to the House of Lords economic affairs committee tasked to investigate the lack of competition in the audit industry. The submission said that both domestic and international investors want to see more competition. Companies also want more choice but potential entrants have difficulties raising enough money to enter the market.

BDO also said that although there is no evidence to suggest that the dominance had affected quality, there is evidence that it has caused an increase in prices.

James Roberts, a partner at BDO, suggests that increasing audit exemption levels would benefit many UK companies.

BDO has joined forces with three other mid-tier firms; Grant Thornton International, Mazars and RSM International to call for changes in auditing procedures in order to prevent another global economic crisis.

The gang of four issued a joint statement swiping the dominance of the Big Four and saying that we must all learn from the economic downturn and accept that “no change” is no longer an option. They also call for the creation of an EU single market for auditing which will have common international standards.

Michel Barnier, the EU internal markets commissioner, pointed out that the reputation of the audit profession had been damaged by the financial crisis and there is a need to encourage more competitiveness within the market. He suggested placing ceilings on the larger audit firms’ total market share of limited companies and joint auditing, whereby two different firms conducted the audit, one of which was not a Big Four firm, as possible solutions.

The Financial Reporting Council’s chief executive, Stephen Haddrill, was not in favour of the joint audit proposal. Instead, he would prefer to see financial institutions using non-Big Four firms when they need advice for their risk committees. He also warned that a audit regulators need to develop a contingency plan in case one of the Big Four collapsed.

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Image: Pigeons by the12thplaya

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Lax audits could lead to an increase in company fraud

Contractor accountants may be interested in the warning from the CEO of BDO Global, Jeremy Newman. He has cautioned that auditors may be cutting corners because of increased competition and cost pressures.

In his blog, Newman pointed out that extreme pressure to reduce costs could encourage auditors to cut corners and less stringent audits have the potential to lead to more fraud.

He says that whilst there has been a drop in demand for audit services, this should be offset by changing accounting standards, additional regulation and high quality audits.

Recruitment levels have fallen by more than the demand for audit services and the economic law of supply and demand should have led to a price increase and yet that has not happened and costs are decreasing.

The potential for an increase in company fraud should cause concern as research, also from BDO, reveals that the value of fraud in the first half of 2010 has risen to more than £1bn.

The head of BDO’s fraud services, Simon Bevan, said that during the recession there was a rise in the number of managers setting up companies within companies and diverting lucrative contracts to third parties. Insider dealing also rose.

Internal management originates 16% of reported fraud whilst another 17% is instigated by suppliers and third party customers. The finance and insurance sectors are the worst offenders with almost 50% of all fraud cases being committed by those 2 industries.

In the past year the average fraud has risen by almost £1m to £6m. Bevan said that fraud is now as prevalent as it has ever been and companies need to be even more vigilant during recessionary times.

© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Caught in the act by saxonmoseley

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