Audit reform: Andrew Brown

The EU needs to ensure a more competitive, vibrant and secure audit marketplace by tackling the dominance of the ‘big four’ audit companies, writes Andrew Brown.

The European group of international accounting networks and associations (Egian) represents 21 accountancy and audit networks after the big four, whose members in the European Union have a combined turnover of €9.4bn and employ more than 106,000 people. We wish to emphasise our view that the creation of a more open and vibrant market for the audit of large listed companies is essential in relation to the public interest and to maintain a broad-based audit profession. The concentration at the upper end of the market is at an unacceptably high level in nearly all member states, and voluntary initiatives, which have been tried in some countries, have not been successful in addressing the problem. Without robust action, concentration is likely to rise further in the coming years with serious adverse consequences.

We believe that regulatory intervention at EU level is now essential. Real change is needed over a relatively short period, so by the end of it a significant proportion of the audit work of larger listed companies is performed by more than the present four dominant players. We do not consider a change in ongoing resistance is in the interests of shareholders, the business community or the wider society.

A more competitive market would lead to much needed innovation, improved client service and more distinctive service offerings. The reforms we advocate would enhance audit quality, promote a more diverse profession and encourage job creation in the union. Moreover, they would reduce the serious risks associated with one of the dominant players leaving the market unexpectedly.

We have supported, and will continue to support, the introduction of joint or shared audits, regular and fair tendering and consideration being given to a market cap on the share of dominant audit firms. Such an integrated programme of reforms is the only practical way to bring about the necessary changes in the audit market.

Egian welcomes and supports the initiative of the European commission to make proposals to create a more vibrant, open and less concentrated market for the audit of large listed companies and to build trust for the independence of the audit profession.

We are particularly pleased to see the proposal of the commission formally published at last, so that a balanced, democratic and transparent debate can finally begin. We are confident that the political debate about to begin will lead to a package of measures, which will inspire trust in the audit market through improved competition and greater choice. This debate about a more open audit market is urgently needed, as has been clearly demonstrated by the “avalanche of words” which preceded the publication of the commission’s audit proposals. Egian will continue to play a very active role in this debate, in the public interest and in the interests of all stakeholders of the financial markets and the audit profession as a whole.

Andrew Brown is chair of the European group of international accounting networks and associations