Barnier rocks the boat
Euro commissioner Michel Barnier is not a lobbyist for the Big Four, this may be clear. In a recent green paper, Barnier is basically questioning the independence of the auditor in his statutory audit work. The auditor is supposed to provide an independent attestation on the financials of the client to its stakeholders, i.e. lenders, shareholders, suppliers, …
… The auditor is paid for its services by the client, thus creating already a certain dependency. We know that this is a longstanding issue. Furthermore audit firms have also grown their revenues in offering non-audit services. Their consulting and support work sometimes even outweighs the pure audit work.
In this green paper Barnier proposes a number of potential changes in order to increase the independency
preventing the audit firm from offering non-audit services
a mandatory rotation every 9 year
fee structure in a way that there is a limitation of the portion an audit firm is invoicing to a single client
In the past we have seen similar initiatives and audit firms have split their attest work from their consulting work. Over the last years, audit firms have again incorporated a broader spectrum of services. In this way we may understand Barnier’s concern. The Commission wants to evaluate whether it is possible to have the appointment, the remuneration and the duration of the mandate overviewed by a third party, maybe the regulator.
On the other hand, as long as the audit firms are commercial organizations, they will also focus on their profitability. When the remuneration is fixed, they will have to work on the other parameters. We have experienced in the past that this may lead to problem situations as well.
Or should the audit work been done by a regulator? We have seen (in tax matters) that this is also not always offering an adequate solution.
The tendency is clear that it will be more and more difficult to combine attest work with consulting and support work. This will create new opportunities for advisory companies, but at the other side this may potentially increase competition resulting from new spin-offs from the audit firms.
Anyway, Barnier is rocking the boat. And when the boat rocks there is new opportunities for our approach “From Insight to Realization”.
Peter Van Oevelen
Member Leadership Team ParkLane Insight Group