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Anthony Hilton: Shared audits add up to a sensible solution

Lunch on Wednesday with Michael Snyder, chair of the Professional and Businesses Services Group, one of the network of advisory committees for government. He, in his day job, is long-time head of Kingston Smith, a mid-sized accounting firm.

Conversation naturally turned to how effective the Competition Commission would be in its efforts to break open the public company audit market so smaller firms get a crack at work dominated by the big four. Not at all was his view, because even a policy shift which demanded that companies change auditors every ten years or so would simply see one big four firm being replaced by another one of the big four. Smaller firms would still be shut out.

But he did have a solution - though not one which found favour with the Competition Commission. He thinks the big firms should be made to bring others in to do some of the work so that in any big group a certain proportion of the subsidiary company auditing is done by someone else. This is quite different from joint audits where a giant and a minnow sign off the books of the holding company - a dangerous conceit for the minnow because it becomes legally liable for the whole project. A shared audit in contrast would introduce a fresh pair of eyes lower down the business, cut costs because the smaller firms are usually cheaper, and give them the experience they need to become more effective competitors in the future. But it is not what the Competition Commission wants to do.