Challenging Audit Market Dominance

There is a growing consensus amongst government, regulators and the profession that, amongst other issues, something needs to be done about market concentration. I support measured change to allow RSM and other networks to thrive and compete for market share. It would be a mistake to enforce punitive measures against the largest firms, who have been successful over many years in developing services for large listed companies. However, the present level of market concentration reduces choice and in most major economies has created a degree of systemic risk to their capital markets. Ultimately it is about what is good for clients.

I was pleased to hear yesterday Commissioner Barnier confirm that the status quo is not an option. It is clear from the proposals announced that the EC is determined to actively tackle market concentration. This should be supported by our profession globally. Commissioner Barnier’s proposals in the areas of mandatory periodic competitive tendering, possible ceilings on market share and the introduction of joint audits do go beyond our response to the Green Paper. However, I welcome the debate within the profession as these proposals are considered in the context of what is in the public interest.

I am concerned about further restrictions on the provision of non-audit services and the introduction of mandatory rotation of auditors. The IFAC Code of Ethics already places appropriate restrictions on the provision of non-audit services and mandatory rotation of auditors may merely result in audits rotating between the largest firms. I would rather see international consistency in line with the IFAC Code of Ethics and transparency over the regular assessment by audit committees of audit appointments.

I would also like to see an end to lenders using restrictive covenants to limit choice to the largest firms and consideration be given to requiring regulatory approval for further acquisitions of established audit firms within the EU by the largest firms, in order to protect against further market concentration.

Audit networks like RSM International have the global reach, resources and technical capability, including common audit methodology, needed to serve larger listed companies.  Our member firms and similar networks should no longer have to fight what is essentially a two tier system, which significantly favours the largest firms. 

It is vital that the momentum for change that has been generated by the Green Paper consultation not be lost and RSM International will look to be actively involved in the further development of the EC proposals.

To read the full speech given by Commissioner Barnier please click here.

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Filed under Audit Proposals, EU, Europe, Technical News

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