The leaders of four of the largest international accounting and auditing firms told the European Commission on Wednesday that they are ready for more official intervention in the audit market to forestall another financial crisis and they support more competition in the market.
The four international accountancy organizations—RSM International, BDO, Mazars and Grant Thornton—released a joint statement Wednesday ahead of the European Commission’s conference on the future of auditing, which begins Thursday.
“We all have a responsibility to learn from the recent financial crisis and to accept that ‘no change’ is not an option for any of us,” wrote RSM International CEO Jean Stephens, Mazars Chairman and CEO Patrick de Cambourg, BDO International CEO Jeremy Newman, and Grant Thornton International CEO Ed Nusbaum.
They said their firms are committed to contributing positively to the calls for change in the audit market. They added that they believe there can be meaningful change that will address the concerns outlined in a recent report by the European Commission on audit policy and lessons learned from the financial crisis, while enhancing the quality of the audit profession.
The four audit firm leaders said they strongly support the view of the commission that there is an urgent need for an integrated program of reforms and a necessity for regulatory action.
“We recognize the privilege bestowed upon us by law as statutory auditors and our responsibilities to serve the public interest,” they wrote.
They outlined three major areas on which policy makers and professionals should concentrate: creating an integrated single market for audit, enhancing competition and choice to avoid the inefficiencies of concentration, and enhancing the relevance of auditing.
They said they supported adoption of the International Standards on Auditing to ensure more uniform audit quality. They also came out in support of increasing competition in the audit market.
“The extremely high degree of concentration in the listed companies audit market must be addressed as a matter of priority, not just due to the substantial market disruption that would be likely to occur if one of the dominant firms were to leave the market unexpectedly, but also because of the benefits that would come from a more open and vibrant market,” they wrote. “Voluntary market-based initiatives that have been tried in some countries have not yielded the hoped-for results and so a new approach is needed.”
They recommended the prohibition of contractual clauses and other institutional bias in favor of the dominant Big Four audit firms, along with a regular reassessment of audit appointments to ensure that audit committees and shareholders determine whether the current audit offering meets their needs and to look at the approaches of alternative firms. They also came out in favor of a global assessment of significant mergers or acquisitions by the globally dominant players in the audit profession “whose consequence is to prevent others from developing international capabilities that will provide a real and credible choice.”
The four audit firm leaders said they also support a review of how audit findings are reported and added that they are “conscious of the growing demand by investors and supervisors for more information, in particular concerning the identification and the assessment of risks. “
They added that there is also an opportunity to offer “a greater level of assurance on the increasingly important narrative reporting, especially regarding the management and governance bodies’ views on the uncertainties facing the business.”
They also said they saw significant merit in considering the progressive implementation of joint audits or consortia audits, which may come in various forms, in order “to strengthen confidence in the audit and improve the diversification of the audit market.”
They plan to participate in the next steps on the European Union’s audit project.
