Grant Thornton breaks ranks with call for independent audit appointment body, as BDO backs market caps
Grant Thornton, the UK’s fifth-largest audit firm, has broken ranks with other mid-tier accountants by calling for the introduction of an independent body to appoint auditors to top listed firms.
The firm told the competition watchdog that caps on market share would not work, putting it at odds with close competitors such as BDO, which has backed restrictions on how many top companies any single firm is allowed to audit.
Grant Thornton pointed to the existence of an independent appointment body in the public sector, saying an “equivalent mechanism” for FTSE 250 appointments “could have a positive effect in terms of promoting independence and addressing potential bias in the procurement of audit by large companies in the UK.”
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Earlier this year, the firm announced it would stop bidding for FTSE 350 audit contracts, with outgoing chief executive Sacha Romanovitch saying the firm was tired of finishing “a glorious second place” to the sector’s Big Four.
Responses to a Competition and Markets Authority (CMA) probe of the sector – aimed at increasing competition and raising standards – have been trickling out over the past two weeks, as the watchdog conducts a rapid review of the sector, which will reveal its initial findings by the end of the year and report fully next year.
Already, KPMG has pulled out of selling non-audit services to its audit clients, while fellow Big Four firms Deloitte and EY have called for US-style audit regulations that put make company bosses take personal responsibility for company accounts. Details of PricewaterhouseCoopers’ response have not been released, but it is expected to oppose any calls to break up the sector.
Read more: Deloitte calls for audit market cap and ban on selling extra services to audit clients
Grant Thornton’s call for a regulator lacks widespread support, with several other CMA respondents – including BDO, two of the Big Four and two industry bodies – specifically opposing it in their responses.
In BDO’s full response to the CMA, seen by City PM, the firm backed a so-called market cap, in which the number of big contracts any audit firms can have would be limited. It said “This intervention could be as simple as by 2023 no audit firm can act for more than 60 FTSE 350 audit clients.”
“We believe this is the most impactful intervention and could be implemented to have a short term impact as well as create a platform for challenger firms to build capability in the longer term,” it said.
Fellow mid-tier Mazars called for a cap and for the introduction of joint audits, with its audit head telling City PM earlier this month: “The implementation of a cap to total audit market share, allied with a joint audit system, lies at the heart of meaningful reform.”
Read more: Mazars says joint audits and market caps are solution to audit sector woes
BDO was sceptical about joint audits, in which the work in shared between two firms, saying: “Whilst this may have a place amongst a package of measure we do not believe this intervention will have sufficient impact. We retain concerns that joint audits will not be truly joint but include major and minor elements where the Changer Firms will be allocated minor roles.”
All three firms have rejected an outright break-up of the Big Four.