Sunday 21 January 2018

UK move to force change of auditors may affect Irish firms

Peter Flanagan

Peter Flanagan

BRITAIN could force listed companies to change their auditors regularly in a move that could have ramifications for Irish businesses.

The UK Competition Commission said the lack of competition in the sector, which has been dominated by a small number of firms for years, could lead to higher prices and less rigorous accounting, as firms focus on retaining contracts rather than auditing their clients' books fully.

Since the demise of Arthur Andersen a decade ago, the vast majority of auditing work has been carried out by the so-called 'Big Four' of Deloitte, PwC, KPMG and Ernst & Young.

Few contracts have moved in recent years, even with the fallout from the financial crisis, when many banks were given clean bills of health only months before they were on the verge of collapse.

Here, the former Anglo Irish Bank sued its former auditor, Ernst & Young, last year over losses arising from the now notorious "bed and breakfast" loans employed by Sean FitzPatrick.

Loan transfer

This saw the former bank boss effectively transfer his Anglo loans to Irish Nationwide just before the end of the bank's financial year, only to reverse them soon after.

The Competition Commission has been trying to open the market for second-tier firms such as BDO and Grant Thornton with little success.

Grant Thornton partner Aidan Connaughton called for similar probe here in Ireland.

"Ireland has much to learn from the provisional findings of the UK Competition Commission report.

"The findings confirm that the needs of shareholders and investors are not currently being best served, and that there are other firms who are well placed to provide auditing services," he said.

Laura Carstensen, who chaired the commission's inquiry into the audit business, said: "We have found that there can be benefits to companies and their shareholders from switching auditors, but too often senior management at large companies are inclined to stick with what they know."

The lack of competition is likely to lead to higher prices, lower quality and a failure to meet the demands of shareholders.

Irish Independent

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