Call for change in the audit market

Disclaimer: Please note that this article is at least 12 months old.
Any information herein was accurate when published on 1 July 2008

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The accounting world is currently dominated by the Big Four, who audit the world's biggest companies. Those involved, including the financial press, argue that “big is better” and a safe choice which cannot be criticised by shareholders.

This concentration has worried regulators who are concerned about the implications should one of these large auditing firms suddenly disappear. All would welcome a “big number five”. BDO, which occupies this position, with over 600 offices in over 100 countries has consistently ruled this out.

“Biggest doesn't necessarily translate into better service or a better skills set,” says Ian Scott, chairman of Marketing and Business Development of BDO Spencer Steward, the South African member firm of BDO. “Big can also mean bureaucratic, slow to respond and expensive. We would rather be a credible alternative – combining the advantages of a global firm with flexibility, personal service and intimate knowledge of the local markets.”

This is why the company has historically made use of a dual naming structure; “BDO” relates to the international capability and “Spencer Steward” to the local firm. “We much prefer the ‘4 plus 2' approach being used widely overseas as we are different for important reasons,” says Scott. BDO Spencer Steward's strapline – “a relationship at work” – underscores the importance of relationships with clients and internally with staff and stakeholders.

In the United Kingdom, a recent government study by research firm, the Oxera, encouraged companies to look outside the Big Four for services. Scott believes local regulators need to address this issue urgently, “This is further complicated in South Africa by previously disadvantaged firms in South Africa vying for recognition without a recognised international name.” He maintains that BDO's United Kingdom and United States firms have managed to displace longstanding misperceptions and gain significant new clients from the Big Four. In addition, BDO Spencer Steward is now the leading provider of services to fast-growing ALTX companies. “Our unique combination of international capability and more personalised service is a message that needs to be understood everywhere.”As a leading mid-tier firm, BDO Spencer Steward had its quality control reviewed by the IRBA in 2007. “We were pleased with the results. They clearly vindicate our belief that we have processes and methodologies in place which are on par with the Big Four in most aspects,” says Scott.

Although the IRBA's report on the Big Four was published last year, the report on mid-tier firms is still to be published. Reasons for the delay apparently include how to differentiate the capabilities of some of the “midtier firms”, the results of which vary considerably. Scott says this report will challenge the IRBA significantly, due to the vast differences that exist between mid tier firms in terms of systems and processes, “I believe there is a definite case for publishing results on an individual basis as the market needs to be informed as to which firms have invested heavily in technology, staff processes and systems, and which haven't. Globally the term ‘4 plus 2' is used and there is a strong case in South Africa as well.”

While the existence of the “Big Four” rather than a “Big Five” will no doubt remain of concern to regulators, this is arguably balanced out by market demand for the specialised and more personal service mid-tier auditors offer, especially in the South African market with its unique challenges and looming uncertainty over changes in the new Companies Act scheduled for 2010.

As companies like BDO Spencer Steward continue combining their well respected international reputation with high standards and systems however, they are sure to grow in stature as opposed to size, thereby further enhancing the auditing industry.

Disclaimer: Please note that this article is at least 12 months old.
Any information herein was accurate when published on 1 July 2008