Mid-tier accounting firm Grant Thornton has described the current audit market as unsustainable and is calling for new rules to promote greater competition.
In a letter to the International Organization of Securities Commissions, the firm put together a four point plan aimed at increasing diversity in the concentrated audit industry.
The firm want regulators to require companies to disclose third party agreements that limit auditor choice, discourage companies and financial intermediaries from entering agreements containing restrictive clauses, and publish balanced findings of their inspections of individual audit firms.
The firm claims that in the event of a Big Four collapse, 20% of the 7200 largest businesses in the G20 would be left stranded without an auditor.
Hell, maybe they have a point? If their claims are legit, we are talking over 1,000 companies that just up and don’t have an auditor any more. And the firm can’t instantly quintuple its global revenue.
We asked a frequent commenter on the subject of Big 4 failure, Jim Peterson of Re:Balance, for his thoughts and he told us:
[W]hen the next of the Big Four goes down — which will be in a highly visible and ugly burst of flame and wreckage — the other 3 will quickly enough leave the assurance business themselves. What incentive would they have to stay? They would not have the resources or the political agility to take up the slack, and there would be no upside for them in the face of relentless attacks from the blame-mongers.
So it’s not 20% — it’s 100% — and then the re-building process starts with a blank page.
That sounds kinda serious. Maybe governments do need to get involved. Seems like the going trend these days anyway.
Global audit industry is unsustainable: GT [Accountancy Age]