Risk & Economy » Audit » Editor’s Letter: On the merry-go-round –

THE FTSE 350 audit market is finally on the move. Where 50-year relationships between clients and auditor evoke images of the traditions followed by the Fidelity Fiduciary Bank in Mary Poppins, a new norm has been created. This sees audit committees jump-started into action by Competition Commission and Financial Reporting Council edicts, creating a regular flow of tendering announcements.

Vodafone, Berkeley Group, Marks & Spencer and Unilever have all made switches in recent weeks. This may drive competition, but realistically only among the Big Four. It’s a merry-go-round, rather than a true revolution. Pretenders BDO and Grant Thornton hold just 14 FTSE 350 audits between them, and they know there’s only a modest proportion of those they can currently handle.

Some strange situations have been caused by the lack of players in the market. Schroders’ audit was meant to be taken on by KPMG, but a conflict created by the firm’s existing relationship with the bank saw PwC reinstated. Vodafone shifted to PwC from Deloitte, but – with former EY chairman Nick Land in charge of its audit committee – did that cut the race from four to three? And were Deloitte going to win the tender after 26 years in the role? Perhaps it was just PwC and KPMG in the running – but we’re unlikely to ever know.

What is equally worrying is that audit is still going through an existential crisis, having never really recovered its reputation post-Enron/Andersen, and then clobbered during the banking debacle. Whether competition is the doorway to improved quality is very debatable – as defining audit quality seems impossible to achieve.

One thing that management, investors and stakeholders cannot do is abdicate responsibility for the financial information they provide and the decisions made off the back of that data. The ongoing dispute between HP and Autonomy’s former management is a great example of advisers finding themselves wedged between two parties. The courts will have to decide who was responsible for what.

What we do know is that there is value in audit and that FDs expect robust inspection as well as some value-add for good measure. But that doesn’t seem enough for the wider business community.

On a much sadder note, I’d like to send my condolences to the family, friends and colleagues of our long-time economics columnist Dennis Turner, who passed away in February. Known for his geniality, fantastic presentational skills and deep knowledge of Fulham Football Club, he will be missed.