Standards & Guidance
FRC addresses audit market concentration
The Financial Reporting Council (FRC)
has released recommendations which it believes could, taken together, enhance the
efficiency of the audit market and reduce the risks associated with a Big Four firm leaving it.
Among the steps the FRC is proposing is that all audit
firms disclose the financial results of their statutory audits so that they can
be compared.
The recommendations come in response to an FRC
consultation, and the seriousness with which the matter is taken was starkly
articulated by Hermes, the pension fund
manager: “audit has become a homogenised, commoditised offering and without some
greater visibility of audit quality and without competition on quality it is
hard to see how any real choice can develop and therefore how greater
competition for audit services can occur”.
Unless audit quality is made more visible to
shareholders, argued Hermes in its consultation response, shareholder approval
of auditor appointment cannot be a meaningful decision.
The FRC market participants group has altogether made 15
provisional recommendations. Among the others are that regulators encourage
participation on standard setting by individuals from different sizes of audit
firms; and investor groups, corporate representatives and the FRC develop good
practice for shareholder engagement on auditor appointment, and consider
introducing a shareholder vote on audit committee reports.
Unfortunately, commented Lombard in the
Financial Times (25 April), a solution to the
Big Four’s dominance looks as far off as ever: creation of a fifth audit giant
from scratch looks either too distant a prospect or fantasy, and break-up by
competition authorities is too radical.
Still, Lombard added, if participants cannot agree on
less “mealy-mouthed ‘market-based’ measures” to bridge the gap, they should be
threatened with bolder regulatory intervention.
The FRC is holding a stakeholder meeting on 10 May to
discuss the project’s provisional recommendations.
Links
Financial Reporting Council
Hermes
Financial Times
May 2007
|
