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Suggestions that the large global audit networks are too big, too diversified, or too tightly woven into the fabric of financial markets abound.
But these proposals fail to recognize that the growth of these firms into multidisciplinary networks is a direct reflection of the market demand for global reach and specialized expertise required to conduct high-quality audits of today’s large, increasingly complex, multinational companies.
The loudest and perhaps most dangerous call is one that dates back almost a decade —the suggestion that audit firms should only perform audits. Raised by the EC in the aftermath of the financial crisis, the audit-only firm idea was rejected at the time as untenable.
The EC and many others recognized even then, with the damage from the financial crisis still fresh, that splitting auditing from non-auditing businesses would not help enhance audit quality, attract the right talent, or increase competition. It would have the opposite effect, harming the industry as a whole.
Specialists are increasingly central to audits. Rapid technological advances, complex global business models, and the thirst for greater financial disclosure continue to amplify the breadth and complexity of financial statements and their audits. To challenge and probe management, auditors must be able to draw on a range of specialists from big data professionals to experts in taxation, forensics, fraud and valuations.
Moreover, independent audit stakeholder research commissioned in 2016 by the U.K. FRC and Institute of Chartered Accountants of Scotland found that keeping this talent within firms for audit support alone does not provide the depth of experience necessary for successful audits and is “not a viable business model,” because their audit work alone is not extensive enough to retain and develop these experts. The multidisciplinary approach, however, allows these experts to continually hone their skills through non-audit consultancy contracts.
But a multidisciplinary model isn’t enough. A high-quality audit also stems from a consistent culture of ethics and integrity throughout the entire firm and across all of its service offerings. Maintaining a full range of expertise in-house is important to ensuring a consistent culture of quality throughout the firm, and such values must be backed up by the right governance, incentives and financial rewards. A firm with one set of values for the audit practice and a different culture or set of values for other business lines is simply not appropriate.