My work trip to London this week confirmed the moderate spring temperature of the bureaucratic climate – the regulators of the accounting profession are not about to disturb the status quo structure and business models of the large firms.
That news had crept stealthily through the cracks last week in a news cycle bracketed by the on-going European financial crisis driven by Greece, on the one hand, and the holiday season of Memorial Day in the US and Pentecost elsewhere.
Giving usual credence to Reuters for May 24, the European Parliament will climb down from Commissioner for Markets Michel Barnier’s aggressive program to impose mandatory (if unworkable) rotation of auditors, and to force the audit firms to divest ancillary practices of any form, not just for clients.
Announced as a “delay,” the Parliament’s exercise in can-kicking -- the wrong direction on a road to any change -- is in ostensible deferral to the expected report on the state of the audit market and profession in the United Kingdom, by the country’s Competition Commission.
That body’s provisional findings, in an undertaking started in October 2011 at the behest of the Office of Fair Trading and with an announced two-year deadline, are vaguely tipped for November – here – although anyone tempted to rely on a reliable English timetable is reminded of the protracted extensions for completion of the Eurostar connection or the O2 arena – not to mention the Godot-like wait for the third runway at Heathrow.
Cover for the EU’s inaction is perfect. The ploddingly deliberate British timeline, by an agency famously “where disruptive marketplace initiatives go to die,” has shown no appetite to fracture the system for independent financial statement assurance that was invented on its home ground in the Victorian era.
It strains belief that positions advocated with passion on the Continent, for the break-up of firms with roots at the dawn of the Industrial Age, will have traction with the competition boffins in London. Rather, traditional British fair play provides the rationale for leaving well-enough alone: The absence of evidence of malign influence or effect in the concentration of the Big Four tetrapoly matches squarely with the lack of research or basis in experience that mandatory rotation, dual audits or restricted scope of services make any positive contribution to audit quality.
Meanwhile, inaction is also the order of the day in America – the third of the world’s audit markets large and mature enough to matter – between PCAOB Chairman Jim Doty’s commitment to further roadshows on his own set of much-derided proposals, and the over-riding political paralysis inflicted by the endless diversions of the national election cycle.
Which, to be sure, does not make the auditors’ future out to be all cakes and ale. New shenanigans in the financial marketplace erupt as ever – from Facebook’s botched and “unfriendly” IPO process to the wrong-way derivatives bet in the London office of JP Morgan Chase that overnight reduced CEO Jamie Dimon from global banking wizard to Oz’s little man behind the curtain.
Facing a slate of continuing existential threats ranging from hostile liability regimes and death-threat litigation exposure to the very vitality of their core product, the large-firm audit franchise is no more robust or sustainable than it was a decade ago when Arthur Andersen’s blinkered leadership drove it over the cliff.
So the predisposition to delay embedded in the functionaries’ DNA in Brussels and London and Washington may offer yet another respite to the auditors and their business model.
But anyone thinking that a “solution” is presented would probably also counsel the European Central Bank to welcome Greeks bearing gifts.
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