Ernst & Young statement: response to Competition Commission’s provisional findings on its UK statutory audit services market investigation
Ernst & Young notes today’s announcement from the Competition Commission (CC) on its provisional findings and possible recommendations on the UK statutory audit services market investigation.
Hywel Ball, head of assurance, UK & Ireland, at Ernst & Young, comments:
“The CC has at this point released only a high level summary of its report so we are unable to comment fully. We are pleased that they recognise that audits are, for the most part, done well and that the service we provide to our clients is effective and diligent. We note that the CC did not find that there is any tacit collusion between firms, bundling or similar abuse, or excess profits.
Ernst & Young strongly disagrees that “the audit market is not serving shareholders”
“We disagree strongly, however, with the CC when it says that “the audit market is not serving shareholders.” We note that much of the summary is on aspects of corporate governance and regulation, and in that context we are surprised that there are important omissions from the description of how that framework operates.
“For example, there is no mention of the role of the Chair of boards and the senior independent directors in representing and safeguarding shareholder interests, nor of the importance of unitary boards themselves. We think the somewhat stark description in black and white terms of the role and power of the finance directors and their motives does not represent the real world as we experience it.
“In addition we believe that competition between audit firms is healthy and robust and that the evidence supports this. We also are focused first and foremost on audit quality – it is our primary responsibility and directly in the interests of the shareholders of the companies we audit.
Ernst & Young’s open book tendering idea taken on board
“With respect to the provisional remedies, we will continue to support any changes in the regulatory framework that are both in the public interest and improve audit quality. We have previously made clear that we support the removal of restrictive clauses in loan agreements and we are delighted the CC agrees with our idea of open book tendering.
Ernst & Young asks CC to reconsider recommendation for two-stage tender process
“Other ideas we have proposed, such as a two-stage tender process and strengthening and increasing the transparency of the audit committee’s oversight of the external auditor, would be constructive. We do not, however, believe that mandatory audit firm rotation is in fact in the public interest.
“We will continue to cooperate fully with the CC as it develops its findings and recommendations as part of the on-going inquiry.”