Monday, 22 July 2013
How the new Audit market will work
The Government is to force FTSE350 companies to tender for their audit every 5 years. This does not mean they are going to change auditor, but they must go through a process to at least allow other companies to bid.
I have worked for a couple of the bigger firms in the now receding past and have a good clue as to how this will really pan out, not as you are reading elsewhere:
1 - Most FD's will be keen to keep their auditors, who understand how the business works and are friendly to it. As such if they do tender their audit that will make it quite clear from the process that they are not really going to change, beyond sending out a letter welcoming bids.
2 - The main purpose is to break the strangle hold of the big 4 firms, but this reform won't manage that. FTSE350 firms are international in scope and this is why they like to have an international auditor. What will happen is the second tier firms like Grant Thornton and Baker Tilly, will be forced to spend a huge amount of time focusing on these bids which in reality they stand no chance of winning. The costs of these bids maybe quite high and so seriously undermine the profitability of these firms.
Everywhere else you will read that this is a welcome market reform, it is nothing of the sort, just aligning the UK with likely EU regulation anyway and also not enforcing the real change, which would have been to force a change in auditor - which would have been good as it would stop firms being in bed with their auditors. Note for example that Barclays has been audited by PWC for 127 years!