A survey last month of the top 100 firms by a leading accountancy IT provider, shows that many accountants believe that the proposed audit reforms by the Financial Reporting Council (FRC) will lead to less protection for investors and the public.
The FRC is planning to encourage companies to put their audit services out to tender every ten years, which is in line with recent EU proposals for audit services to be rotated every six years, although the FRC believes this to be too short a period,
But although the survey found that many accountants understood this and the objective to increase competition among firms, more than half felt that the measures would lead to less thorough audits, loss of objectivity and ultimately less scrutiny.
However, the reforms are partly being proposed to prevent auditors from getting too close to their clients. They follow the widespread failure of auditors to question the prudence of their client decisions prior to the credit crisis.
The FRC has said that tenders would need to be staggered to ensure that the market can cope with the reform. Audit contracts for 40 FTSE 100 companies would not go up for tender until 2018, or later, for example. The FRC has also limited the rule change to large companies within the FTSE 350 index.
A spokesperson behind the survey said: “Our survey particularly highlighted the worry that any new auditor would have considerably less experience and knowledge about the company it is auditing.
“In such cases it could take several years to replicate the understanding that was in place prior to the rotation. This could well lead to investors and the public being less protected.”
As an accountant, Nigel Fry, specialises within the audit and accounting sector.