Mazars Ireland
Mazars is one of the leading professional services firms in Ireland.
ID: 601194145423-74
Lobbying Activity
Response to Strengthening the quality of corporate reporting and its enforcement
4 Feb 2022
Call for evidence for an impact
assessment
Mazars Ireland
EC Consultation on Corporate reporting 04/02/2022
Auditors play a cornerstone role of public interest for the benefit of economy and society: they reduce information asymmetries and build stakeholders’ confidence, fueling the transition towards a prosperous and sustainable EU economy. Auditors are facing increasing demands on quality and scope (ESG), but at the same time their number is shrinking in the EU PIE market. If this market is not open to increasing competition and welcoming additional players, who will have the capacity to audit and insure PIEs financial and sustainable information at a reasonable cost in the future?
In the context of an increasing number of cross-border operations and further integration of the Capital Market Union, there is a need for a single market solution through improving the EU framework on corporate reporting, which should contribute to further harmonisation and enhancement of audit quality for all EU entities.
We refer to the Mazars’ Group answer for the EU dimension response to this Call for evidence. As we were not able to fully convey our arguments through the Ireland professional bodies, this Mazars Ireland contribution aims at highlighting specific audit market concerns in the Irish economy, which is an important component of the European economy by virtue of its role as a financial services centre and as an important location for international investment in business in the European Union.
Despite the positive impact of the European Audit Reform, the Irish PIE audit market remains highly concentrated with approximately 90% by value and over 70% in number of Irish PIE’s audited by Big 4 firms. It is also notable and of concern that the number of audit firms active in the market has reduced since 2016. Thus, while the European Audit Reform has been beneficial, it has not yet succeeded in creating conditions which have successfully addressed the concentration of the audit market.
Excessive concentration cannot but undermine audit quality. The limited number of audit firms in the PIE audit market not only impacts companies’ choice, competition on quality grounds, and the resilience of the profession, it also reduces the efficiency of quality incentives and generates supervisory self-containment. When there are cases of shortcomings in an audit, supervisors’ ability to take sanctions is reduced so as not to risk threatening any firm’s license to operate and maintain sufficient audit capacity for major companies.
The situation is strikingly different in France, where joint audit is compulsory for most PIEs since 1966, with a large number of audit firms active in the PIE audit market (256 in 2020):
17 audit firms share the 233 mandates of the French prime listed companies’ market (ex-SBF120) and
non B4 audit firms have more than one third of PIE joint audit mandates.
Conversely, those markets where joint audit is not practiced show signs of the challenges arising from concentration. For example, in 2021, there were 10 companies with no auditor in the Netherlands (and there are similar challenges in Denmark)
Joint audit can address both quality and choice challenges in the EU PIE audit market. The four-eyes principle guarantees an additional security check on corporate reporting: two pairs of eyes from different audit firms ensure the reliability of information and the independence of auditors better than any firm’s internal quality control management systems could. With appropriate transitional measures and time, it is possible to change the rules of the game, set up the conditions to structurally improve audit quality, and offer a larger choice of auditors to PIEs.
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