Grant Thornton Comments On FRC Audit Report

by Jason Gorringe, Tax-News.com, London

20 May 2008

Grant Thornton has welcomed the Financial Reporting Council's progress report into competition and choice in the UK audit market.

Speaking earlier this month, Michael Cleary, Chief Executive Officer of Grant Thornton UK LLP, stated that:

"This report shows that in the past 15 months Grant Thornton has increased its number of FTSE 250 audits from one to five while consolidating the firm's number one position on AIM and increasing its stake in the small cap/fledging market from 2.6% to 8.2%."

"The FRC is helping to create an environment which fosters greater choice in the public interest market and we welcome their programme."

"However, the report also illustrates that there is still a lot to be done by firms, regulators and companies if there is to be substantial change in the larger public interest market. The overall shape of the market has not changed significantly, although most participants believe that a reliance on just four major audit firms is unsustainable in the longer term."

Cleary continued:

"There are some real barriers which need to be addressed by the FRC as well as by firms such as Grant Thornton. For example, the auditor selection policies of funders and intermediaries needs to be more transparent. While the management of financial institutions at the highest level understand and support the need for greater choice, in practice there is often resistance to appointing a firm outside the Big Four."

Audit competition is a matter of great interest to regulators across the world, and Cleary suggested that unless regulators are happy with incremental changes, they will need to be bold in the steps they take to foster an environment that will promote greater choice, otherwise the basic shape of the larger public interest market place will stay the same.

As the FRC report noted, increased choice for public interest entities requires both an increase in the propensity of non-Big Four firms to offer to audit public interest entities, and an increase in the propensity for public interest entities to select non-Big Four firms as auditors.

Cleary went on to state that:

"Some regulators have criticised non-Big Four firms for not solving the problem, but they must look to the demand side as well as the supply side."

"Internationally, the Grant Thornton network grew by 25% in 2007, which was by far the highest growth of any international network with very high growth in emerging markets such as China, India and Brazil, as well as continued growth in the more established economies."

"In the UK, Grant Thornton's merger with Robson Rhodes is a further signal that the firm is stepping up to the plate. Grant Thornton has the international reach, expertise and capability to serve all but a very small number of the largest global companies."

He concluded:

"If regulators are serious about changing the overall structure of the larger audit market they need to focus more on the barriers on the demand side, as that is the key to getting more competition and choice in the market."

Recommended