A letter from Paolo Quattrone, Director of the Centre for the Analysis of Investment Risk, in which he discusses audit market reform has been published by the Financial Times.
Quattrone, who is also Professor of Accounting, Governance and Society at Alliance MBS, was writing in response to an earlier article published by the newspaper which discussed the likely failure of the UK’s planned audit market shake-up.
He states that although the current auditing reforms are likely to be unsuccessful, in calling for greater competition one should also ask what auditing firms are competing for. He says the very likely answer is that they are competing for clients, not for the quality of the audits.
Interests of the public
Wrote Professor Quattrone: “How do we repurpose this competition and make sure it plays in the interest of the public? The answer is simple - adopting the principles that inspire the judiciary system. In that system we have lawyers who serve the interest of the client, prosecutors who pursue the interest of the public, and judges who exercise wise choice in the interest of society. In the current structural arrangements in the auditing business we only have lawyers who are paid by the client, but who serves the public interest?”
He also advocates a public agency which collects fees from auditees and assigns auditing jobs to auditors. “This would finally eliminate the biggest elephant in the auditing room, namely the conflict of interest between auditee and auditor. Auditing firms will still compete, but to secure auditing jobs in the public rather than in a private interest. This is common sense, but in the auditing industry common sense does not seem to be common.”