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Auditing Reform: Does re-tendering deliver value?.

RiskContract managementConsulting ServicesGovernance and Legal ComplianceAccounting Audit and TaxWestern Europe+-

In this guest post, Procurement Leaders invites Guy Strafford of Proxima to explain why proposals for audit reforms are not a fix-all for accountancy services buyers.

 

The idea of mandating tenders for auditing services every five years - as UK businesses could be told to do - is a definite step in the right direction when it comes to managing the influence of the ’Big Four’ accounting firms.

 

The provisional findings emerging from the UK Competition Commission’s investigation into the audit market, on face value, provide some cause for optimism.

 

But more tendering does not itself mean more competition – there has to be more than just new process points if the foundations of a more competitive marketplace are to be effectively laid. Paradoxically, more tenders means the better-resourced ’Big 4’ bid teams could be best placed to win business from the FTSE 250 and below, further concentrating market share.

 

Procurement has a vital part to play. CPOs can provide this essential insight into both the tendering process and the ongoing management of the contract, to ensure that, over its five-year term, service and quality levels are maintained and shareholder value is protected for the longer term.

 

From a regulatory standpoint, meanwhile, the way things are, the Commission poses as many questions as it presents answers. Removing the ’Big 4 only’ clause from loan documentation can only be effective up to a point. We need more clarity on what tenders will comprise and how they will be managed and monitored to ensure that they genuinely promote competition and provide opportunities for mid-tier providers.

 

Clients also have to be safeguarded against fluctuations in quality and value. For the FTSE-350, five-yearly tenders means, on average, 70 assignments will be put up for review each year. The drive for competition should not result in less prestigious assignments being afforded reduced attention and detail. In short, the Commission must be careful not to give with one hand and take away with the other.

 

The Commission has made much-needed progress into identifying a means of injecting competitiveness into a very narrow marketplace. But it must take this opportunity to enable proper, effective competition that delivers better quality, increased objectivity and enhanced value for shareholders, while enabling mid-tier providers to play a larger role in delivery of larger-scale audit assignments.

 

Guy Strafford is chief client officer at Proxima Group.

Jonathan Webb
Posted by Jonathan Webb