PCAOB Debates: Beyond audit firm rotation, companies ask for choice, independence and audit quality

For Mazars, independence is key in today's audit market and has a vital role to play in developing a more open and vibrant market. Market concentration has been allowed to develop to an excessive extent despite the fact that the statutory audit is a highly regulated activity. This has come about over the last 40 years through major acquisitions, mergers and even one player leaving the market.

Mandatory rotation, associated with regular, fair and transparent tendering, could be a possible regulatory response to reduce market concentration and improve the perception of auditor independence.

But Mazars considers that there is a need for a broader-based integrated package of measures, to make a difference, reduce market concentration and permit existing non-dominant firms to build experience with the largest companies.  There will be no "big bang" solution now, no silver bullet, this is an unreasonable expectation.

Mazars thus suggests that joint audit, whereby non-dominant auditors will be given the opportunity to build, over time, experience at the top end of the market and as such justify the considerable investment that will be required, is also a crucial measure a regulator can take to ensure that real change takes place.

The best response to the risk of excessive familiarity lies in considering the relationship between the audited entity and the signing partner and in shared responsibility for the audit opinion.  The effectiveness of shared responsibility of opinion between two independent firms (Joint Audit) considerably reduces the risk of familiarity.  Because the work of each audit firm is subject the scrutiny of the other and the opinion on the accounts is jointly signed, the rotation of audit firms is not necessary where there is joint audit.  At most, mandatory rotation over a long period (15/20 years?) could be considered, to encourage independence.

In our view, audit and consulting firms also have to be transparent and accountable with regards to their own governance. There are two ways to foster progress: by law or by market players providing leadership by adopting best practices themselves. Both are necessary and complementary. Best practices that are in line with the public interest, and which clearly have a positive impact, should naturally be adopted. At Mazars, we have made some important choices and thus made our contribution in this regard:

•   We are a globally integrated organisation with an integrated partnership of 800 partners at a worldwide level;
•   Transparency of financial performance and governance- since 2005, Mazars has published its Annual Report that presents its jointly audited consolidated accounts, prepared in accordance with IFRS. To date, we are the only worldwide audit and advisory services group to submit itself to this demanding exercise under the same conditions as its listed clients.
•   An open and vibrant environment- Mazars does not intend to deploy a model based on the approach of a particular country or region at global level but strives to integrate different cultures. We are in favour of a world embracing diversity and are particularly at ease in situations that require listening and dialogue.