Audit reform plans need global perspective, says CPAB

The Canadian regulator is warning against a dilution of audit quality if fees are cut and audit becomes too commoditised.

In its response to the Competition Commission's proposals for reform of the UK audit market, the Canadian Public Accounting Board (CPAB) has stressed that reform needs to be undertaken in an international context and highlighted concerns about plans for mandatory tendering.

Brian Hunt, CEO of the Canadian Public Accountability Board said: 'While certain jurisdictions around the world have adopted a mandatory rotation and/or mandatory tendering regime, we are not aware of compelling evidence that this policy has led to improved audit quality and our understanding is that it may have led to a substantial reduction in audit fees in some jurisdictions.

'Moving to mandatory rotation/tendering may lead to increased price competition and our concern would be that the audit becomes a commodity to be differentiated on price and not quality. A race to the bottom on fees would not be in the shareholders' interest.'

The Commission has until October 2013 to publish its final recommendations, but the level of response from the Big Four and leading mid-tier firms demonstrates the scale of opposition, particularly on the part of the Big Four. The latter already dominate the FTSE 350 audit market, with a 94% share of UK listed audits, but their reaction to the proposals has been defensive. The mid-tier on the whole welcomed the proposals.

Although the majority of reaction published so far has been from UK stakeholders, responses from the big shareholder groups have not been made public as yet.

So far, the published responses are dominated by accountancy firms although submissions from a number of stakeholders including the CBI, Financial Reporting Council, Financial Services Authority and CPAB are available on the CC site.

While the CBI reiterated its support for mandatory tendering, removing restrictive covenants and enhanced shareholder-auditor engagement, it also expressed concerns about the tenor of the proposals.

Matthew Fell, director, competitive markets at the CBI stated: 'We believe the conclusions drawn on the role of audit committees and their chairs, for example, blur the important distinction between the roles of management and non-executive directors in relation to audits.'

The CC will continue to publish feedback documents over the next few weeks before it starts preparing the final recommendations for publication in the autumn.

To read more about the firms' reaction to the CC's audit reform proposals, read Audit reform: supply and demand

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