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Is that photo of the former KPMG Manchester office?
Its now above the Dutch Pancake House
I rather like the sign " No loading at any time".... is this a reference to KPMG fees ????????
"According to the Financial Times, FRC’s chief executive Stephen Haddrill has already made a case to the CMA for "audit only" firms to increase competition in the market, which would force the Big Four to divorce their audit arms into separate businesses."
Surely that is really just can kicking, unless new entrants somehow brought into the market there are still just four, for that to change it surely requires a mentality shift from audit committees re who they will use and acceptance of that choice by shareholders and other stakeholders.
I think independence is weakened by cross selling but that is a slightly different concern to the closed shop re choice issue that only four firms cause.
Surely introducing more competition means that margins are tighter for firms and so more corners are cut and it is harder for an auditor to stand up to the client if they can easily move elsewhere.
It still doesn't address the elephant in the room - that the audit firm has a fundamental conflict of interest. The reality is that auditors are appointed by and their fee agreed by the directors, and if they displease the directors then they lose the job. Shareholders do not have any real say.
It's like the judge and jury being appointed and paid by the defendant.
Do we need a system where the auditor is appointed from a panel by the State and so the directors can't sack them?
As an ex auditor, the whole set up stinks quite frankly.
its a very hard "so what do we do from here?" but I think the answer has to start at divorcing audit from "other work". Then you may then have to force those 'audit only' firms to split in two. It will take maybe 5 years for the old other halves to actually be separate and you have 8 'old' firms plus the next tier and you actually have a market place rather than an oligopoly.
Then once there, you can maybe go down Jon's route of proper independence with panel appointment for companies, with firms missing out on new appointments for (say) 6 months if they have a scandal so putting some real financial pain on not finding stuff, rather than the current incentive to just not look too hard.
The trouble is the only advisors government has is the very advisory that have a vested interest in it not happening.
Insolvencies are distributed on a "merry go round" basis, aside from the markedly less than perfect practice in that market why couldn't audits be rotated on a strict time limited basis? Medicean Florence had that principle in it's Gonfaloniere di Giustizia only holding a position for six months to prevent fear, favour, and maladministration.
Because audit firms who did other work would still not want to jeopardise their chances of getting other lucrative work by qualifying the audit report.