Lowering existing barriers to entry for auditors, but also measures to encourage organisations to be more open-minded to a broader range of firms are among the ideas put forward in a publication from Accountancy Europe, which analyses the dynamics influencing auditor choice in the Public Interest Entity (PIE) market.

The need for a diverse and resilient PIE audit market with enough audit firms active in it is in the public interest; it ensures that all PIEs’ and their stakeholders’ needs are served, and PIEs can choose their auditor primarily based on quality.

However, auditing PIEs – ranging from banks and large international companies to smaller and locally listed companies – requires significant resources and skills and is highly regulated. In recent years, the limited choice of PIE audit firms and concentration in the PIE audit market have been a source of potential concern among stakeholders including academics and policymakers. 

Júlia Bodnárová, Head of EU Audit Regulation at Accountancy Europe, says: “The numbers don’t necessarily say there is not enough choice, however they do point to a high concentration of the largest audit firms in this market. The worry of policymakers is more about the resilience of the market. And with sustainability assurance coming down the line, concerns about PIE audit capacity are growing.”

This publication from Accountancy Europe – a body that unites 50 professional organisations from 35 countries, which between them represent one million qualified accountants, auditors and advisers – aims to contribute to the debate by considering a range of supply and demand side issues, but warns that there are no simple solutions to promoting auditor choice and making PIE audits more attractive.

From a supply perspective, lowering existing barriers to entry is key. It warns that the existing regulatory landscape for PIE auditors adds costs and disincentivises audit firms from joining the PIE audit market. Consistent and proportionate rules for both auditing and audit oversight across countries would help, it says. 

“It’s very important that regulators have a mindset of helping the audit profession to develop and learn, so it’s not only about sanctions, but also accepting there is a learning curve for new entrants to the PIE audit market and an investment requirement for them to scale up,” Bodnárová says.

Meanwhile, continuing to allow the provision of assurance services, linked with the audit, to audit clients also helps to avoid further reduction in the number of auditors available to PIEs, as would proportionate liability regimes for auditors.

The publication highlights the need to create a PIE audit market environment that is both an attainable and attractive proposition for new entrants. It also calls on policymakers to explore ways to help mid-tier firms win PIE audit clients and highlights the need for capacity and expertise-building among potential new entrants to the PIE market. There is room to explore different models of cooperation and experience sharing among audit firms.

But a change of mindset among the PIEs themselves is also needed, Accountancy Europe warns. Companies, audit committees and shareholders need to be more open to using a broader field of players in the PIE audit market. At the same time, measures to improve the quality of financial reporting and mitigate corporate risks will help with de-risking PIEs, thus allowing them to find an auditor more easily. 

“The audit committees responsible for selecting an auditor need to be more open and support diversity in the PIE audit market, by considering mid-tier firms in the selection and giving them feedback if they are not selected so they can learn from the experience. But there may also be a perception in some countries that there is regulatory pressure to make a safe choice and to choose those audit firms that have the experience and the client base. Then how do you break the cycle to bring in new firms?”

Further research on the EU audit market is needed to clearly define the issues and explore existing barriers to more auditor choice, the appetite of audit firms to audit PIEs and PIEs’ appetite to appoint mid-tier audit firms as their auditor, Bodnárová says. Gathering facts and stakeholders’ input are also crucial to informing any future policymaking. 

“The purpose of this publication is to help contribute to the debate, but this is a complex issue with interplay of different parties and factors and there is no one solution. It’s also important to understand whether the involved parties want to change and make different choices. Only then can you determine whether market intervention would be needed.”

• The resilience of a EU PIE market is one of the subjects being touched on in a one day event in Brussels on 12 October 2023 hosted by Accountancy Europe and the European Confederation of Directors Associations.