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!
7 comments:
I see the small piece in the Standard last night says much the same - must have been reading you for some extra copy
so what i have to say about that is that i find it very interesting article so thanks for sharing with us this great ideas "" 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. ""
ARHHHH...poxy SPAM!
No, it won't work.
They should just raise the status of middle ranking firms by giving them government work and useful information to raise their credibility in certain sectors, as well as set parameters in bids by stipulating that prospective accountants must be named; the policy being that smaller firms are regarded favourably.
Wait for the legal challenges but the market needs to be fragmented and preparing expensive bids WILL dilute the resources of smaller firms.
Whenever a company was coming to the market, the accountants had to be changed to one of the big four. Thgis still happens and everyone earns more fees. A FD once told me how he would tell the senior partner at the lavish lunch at the end of audit how brilliant the most dopey member of the audit team was and ask for him to be on the team the following year. Worked every time. The company went bust three years later.
I questioned someone very senior in the profession about this (and other conflicts of interests) and expressed his confidence in the gravy train professional bodies that oversee it all.
measured, quite. The better idea was to break up the big 4 which clearly have a monopoly in their markets.
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