Calls for sweeping changes to the auditing sector are gathering pace. The Financial Times has been running a series called the Big Flaw that has focused on areas such as “A return to prudence: how to restore faith in accounting” and “An illusion of choice: the conflicts that mire the audit world”.
To conclude the hard hitting series, the FT has posted an opinion piece that says: “Changes to accounting standards have reduced auditors to box-tickers. Conflicts of interest are rife, between firms and their clients and between firms and their regulators. Auditors are subject to weak oversight and feeble enforcement.
It adds: “Meanwhile, Deloitte, KPMG, PwC and EY are close to an untouchable oligopoly, too big to fail and increasingly too big to regulate effectively.
“These problems have contributed to a dangerous decline of public trust in the system, exacerbated by repeated scandals. They have in turn added to overall mistrust in business.”
Concept of fair value
The FT wants a return to the concept of “fair value” as a prudent framework for the auditing profession. It would also welcome a shake-up of the market itself.
It says the FRC should be allowed to sharpen its teeth and loosen its ties with the Big Four.
“The regulator can then ensure an effective cap is put on the biggest auditors’ market share. The firms themselves have discussed temporarily limiting the Big Four to 80 per cent of the FTSE 350. This is a good start but does not go far enough. A cap of, say, 60 per cent would catalyse real change.
In addition, the biggest firms should share audits of the largest companies and give smaller rivals access to their technology platforms.
Also, challenger firms should be brought into the picture and awarded prize contracts in a form of positive discrimination.
Interesting times ahead.