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One of the UK's leading accounting institutes has offered tentative support for mandatory joint audits, a model which can increase the likelihood of fraud, according to senior auditors.
England's most prominent accounting institutes, the ICAEW, said mandatory introduction of joint audits should be one option explored in a bid to promote competition in the top-heavy audit market.
The stance has put it at odds with senior accountants who have railed against joint audits, which they say can increase the chance of major fraud.
Joint audits involve two accounting firms passing judgment on major company accounts. The model is being advanced as a solution to audit concentration issues by the European Commission.
But it has so far met fierce resistance from senior accountants in UK, who argue it could increase the chances of major fraud and raise the cost of audit.
The ICAEW's surprise comments came in a submission to a European Commission.
"Mandatory consortia could act as a catalyst to dynamise the audit market," the body said in its submission.
"The mandatory introduction of requirements for joint audits at national level should be tested rigorously against the criteria of audit quality and the balance of costs and benefits...we do not rule out mandatory consortia or joint audit arrangement for listed companies as they may be suitable in some markets."
Last month KPMG senior partner John Griffith-Jones told a Lords inquiry fraud had "deliberately got through the cracks" following joint audits in the UK.
"I refer particularly to BCCI which was probably the most famous example...Parmalat is another," he said.
"While there is no strong evidence either way that two firms are better than one, there is some evidence that two firms can lead to a weakening of the audit relationship where someone is deliberately trying to commit fraud."
KPMG reiterated its objection in its submission to the European Commission, where it said there was no market desire for a joint-audit model.
"In recent times, the shareholders of Deutsche Telekom, BHP Billiton and Shell have all chosen to move from a joint audit arrangement to a sole audit relationship," the organisation said.
"We are not aware of any shareholders choosing to move to a joint audit where they have the choice not to do so.
" In October another senior auditor, from a rival Big Four firm, also said joint-audits could increase fraud.
"A crook could deliberately see an advantage in having two sets of auditors," said the auditor, who spoke on condition of anonymity.
A joint-audit model currently operates in France which introduced the system to safeguard its domestic audit industry and increase scrutiny of accounts. French firm Mazars, has proven the major beneficiary of the system and often acts as the "second auditor" in major company audits.
The firm has also lobbied for the system to be introduced in the UK and more broadly across Europe. David Herbinet, senior partner with Mazars told the Lords inquiry joint audits could help reduce the chance of systemic risk and would increase the level of scrutiny on published accounts.
"You have more people looking at the complex issues," he said.
"Very simply, in our view, this is the only proven mechanism that has reduced concentration in a major economy and in the segment of the market where systemic risk exists."
Source: «Accountancy Age»
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