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Audit firms face Brussels onslaught
The Big Four accounting firms are under attack from the European Commission, which is pushing for tough rules that would force the firms to abandon their consultancy businesses and share audit work with smaller rivals. Companies with balance sheets greater than €1bn would be forced to hire two
auditors to conduct a “joint audit” of their books, including at least one firm outside the Big Four of Deloitte, PwC, Ernst & Young, and KPMG. Auditors will also be outlawed from working for a big company for more than nine years – a policy of “mandatory rotation” that Mr Barnier thinks will bolster independence and stimulate competition. Some big multinationals have had the same auditor for more than a century. Non-audit work is described by the Commission as “a source of conflict of
interest”. The draft says: “Audit firms of significant dimension should ... not be allowed to undertake other services unconnected to their statutory audit function such as consultancy and advisory services.” A spokesman for Deloitte said the measures would “harm audit quality” and drive up costs for companies using auditors. The second-tier firms, such as BDO and Grant Thornton, have long campaigned for regulators to help reduce barriers to entry. But the Big Four have to date successfully deflected many of the proposals. Mr Barnier will face an uphill battle winning approval of EU member states and the European parliament, which is required for the regulation to be enacted. John Griffith-Jones, UK senior partner of KPMG, said he hoped regulators would
take into account the firms’ expertise. “It depends on how you see auditors. If you think we’re a bit like the privatised coalminers of the 1910s, then you’d want to nationalise us,” he said. “If you think we’re more like doctors, with an expertise in what we do, then you may want to listen to our views on these issues.” Mr Barnier’s team believe the conflicting commercial interests of the big firms
have eroded trust, stifled competition and compromised the scepticism of the accounting profession. “Auditors play an essential role in financial markets: financial actors need to be
able to trust their statements,” Mr Barnier told the Financial Times. “There are weaknesses in the way the audit sector works today. The crisis highlighted them.” He said his “ambitious” proposals would have one key objective, “ensuring
robust and completely independent audits in the wider context of a better functioning internal market for audit services”.
Pricing pressures is one of the main concerns for EU companies
In today’s global economy, organisations are facing unprecedented pricing pressures as they deal with volatility in the commodities markets, currency fluctuations and unyielding international competition. To help mitigate the challenges, a number of world-class companies are turning to pricing software recommended by organisations from McKinsey, to Gartner and KPMG. In fact, both McKinsey and Gartner indicate that raising prices by 1-2% reaps margin increases up to nine percent. A recent survey by audit, tax and advisory services firm
KPMG reflects these findings. In its annual survey of manufacturing executives from global companies, shows that almost 80 percent of respondents indicate they are cautiously optimistic about prospects for growth in the next 12 to 24 months. Almost half (44%) of the survey participants believe that price
volatility in raw materials and inputs remains the biggest challenge, followed by increased competition, pricing pressure and uncertain demand. EU companies in the survey noted that pricing and competition were at the forefront of their concerns. To better manage volatility, KPMG respondents indicate they
are reshaping their pricing models, with pricing identified as one of the key strategies. “With recent strike action linked to demands for salary
increases above inflation, increases in the price of electricity and other infrastructure, tolls and the slowdown in manufacturing output, this has put severe pressure on company’s margins,” said Gavin Maile, KPMG’s Africa Head of Diversified Industries. “Pricing is a powerful and proven strategy for improving top-line growth and profitability, yet few organisations know how to do pricing well.”
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OCTOBER 2011 www.finance-monthly.com