Tag Archive | "Financial Reporting Council"

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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Regulator aims to crack down on auditors

The chief financial regulator, the FSA, wants new powers to censure, fine or even disqualify accountancy and audit firms.

A new report criticises auditors over their failure to scrutinise management adequately in the run up to the financial crisis. The report accuses auditors of showing a disturbing lack of scepticism.

The FSA says it now needs more powers of enforcement so it can deal with individual cases of regulatory concern.

Currently, officials from the FSA only meet auditors once a year but they now want to meet then several times to discuss any potential issues before year ends. The Association also wants to have direct access to listed companies’ audit committees so that they can discuss audit issues.

Michael Izza, the chief executive of ICAEW, said any reform of the audit profession needs to be based on evidence. He defended auditors, saying they had not failed and he flatly rejected that there had been a fundamental failure in auditing processes.

He stressed that last year’s Treasury select committee had determined that there was little evidence to show that auditors had failed in their duties towards limited company contractors.

Izza did agree that there were lessons to be learnt from the crisis and the accountancy profession was asking itself how to evolve the current audit model to meet the ever changing needs of the market. However, changes should focus on the actual situation, he said.

The head of audit at PwC UK, Richard Sexton, said that the FSA’s perception of an auditor’s responsibilities appears to differ from that of the auditing profession. Auditor’s view their role as one of making sure management has the right evidence to back up its assumptions, not to present them with alternative views.

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