After the major meltdown of the banks in Europe, the industry that has come under scrutiny almost as much as financial institutions is the audit industry. Had the auditor’s done their job well, the meltdown could have been avoided. This actually can be said of almost all scandals and meltdowns. The auditors are the final check for all financial numbers the public companies report to external parties. In some cases the auditors raise red flags (see article “You’ve been warned!“) but the company’s officers ignore the concerns and eventually there is a big blow up. But recently there have been more cases where the auditors have missed big issues in the financials or internal controls of the companies, the effect being big meltdowns.
But is having more audit firms the answer to the problem. Britain’s Competition Commission believes so. They believe that the Big 4 are restricting competition in Britain’s audit market for the top 350 listed companies. And due to the Big 4 dominance, the Commission believes public companies are suffering. The Financial Reporting Council has asked that the audit work should be put out to tender at least every 10 years.
But is the answer increasing competition in the audit industry or is the answer having more accountability associated with the audit firms.