Supplementary memorandum by Mr Steve Maslin,
Grant Thornton (ADT 22)
Having viewed a number of the oral sessions
and read some of the written submissions to the Committee, I am
moved to write to you to reinforce two points I made at the oral
session, as I am very concerned that the Committee could be misled
by aspects of the evidence supplied by some other parties. If
protocols permit, I should be grateful if you would bring this
note to the attention of the Committee and I would be happy for
its contents to be put on the public record. As ever, I would
happily take your advice on how best to deal with this matter.
The first point concerns audit quality, a matter
my firm views as a priority. I expressed the view at the hearing
that the FRC had missed an opportunity in publishing the results
of the 2009 findings of the AIU on the large audit firms to make
a positive comment on the audit quality of some firms outside
the four largest. While I am not complacent about Grant Thornton's
ability to deliver high quality audits on a consistent basis,
and acknowledged that the firm would be likely at some future
point to have audits that the AIU believe were less than satisfactory,
those 2009 AIU findings highlighted that while each of the four
largest firms had audits graded "requires significant improvement"
neither Grant Thornton nor BDO had any such negative findings
in the audits examined by the AIU. (I have provided a summary
of the 2009 AIU findings in the attached memorandum.) Not only
did the FRC miss this opportunity to correct some false perceptions
about relative audit quality at firms such as Grant Thornton and
BDO, in publishing the 2010 AIU audit findings it allowed some
commentators to perpetrate further the myth that the four largest
firms have a monopoly on audit quality (for example in response
to the 2010 report of AIU findings the Times ran a piece on 21
July which stated:
"Regulators have been concerned for years
that the audits of big companies are concentrated among a handful
of top accountants—but if the smaller firms are not up to
the job, what choice do those companies have?"
despite the fact that the AIU report did not contain
criticisms of Grant Thornton or BDO). While in its own written
submission to the Committee the FRC does seek to redress this
balance, I continue to believe it could do much more when publicising
the AIU findings to make a positive comment (where merited) about
respective levels of audit quality.
I am keen to reinforce this point now, ie that
the evidence of the AIU findings is that firms such as Grant Thornton
and BDO are capable of providing high quality audits at least
as well as the four largest firms (and arguably on a more consistent
basis), as I see that one of the largest audit firms in its written
evidence has sought to make a link between size of audit firm
and levels of audit quality. I believe that it would easily be
possible for a reader of that submission to draw the false conclusion
that the AIU's findings support the audit quality of the four
largest firms over firms such as Grant Thornton and BDO. While
in its 2010 report the FRC did criticise the audit work of some
small firms, this criticism was clearly directed at certain firms
very much smaller than the four largest and indeed much smaller
than Grant Thornton or BDO.
The second point concerns the levels of investment
required, inter alia in global "audit approaches", for
firms such as Grant Thornton to provide high quality audits to
large corporates which operate on a global scale. I expressed
the view at the hearing that Grant Thornton already has the capability
to deliver high quality audits to possibly all of the FTSE 250
and indeed much of the FTSE 100 and that we have the cash resources
already in place to acquire the people necessary to audit at least
20% of the FTSE 250 without diluting partner capital.
I am keen to reinforce this point now, as I
see that one of the CEOs of the four largest firms is reported
to have told the Committee that his UK firm had spent approximately
£40 million to roll out the firm's revised audit approach
project in response to the changing needs of its clients and that
the "overhaul" cost the network globally around $400 million.
However, Grant Thornton (both in the UK and throughout all of
the Grant Thornton International member firms which operate in
approximately 100 countries) has already invested in and successfully
rolled out its own modern audit approach which is enables us to
meet the industry international quality kite mark (ISQC 1) and
all modern audit standards and regulations. Moreover, the results
of the AIU inspections, coupled with the various audit awards
Grant Thornton received in 2009 (which include:
— the CBI/Real Director Auditor of the
Year (Large 6) Award (voted by the FDs if 1,000 of the UK's largest
entities);
— the Aim Auditor of the Year Award; and
— the Accountancy Age Global Audit Firm
of the Year Award
suggest to me that we have successfully implemented
this modern audit approach in a way which enables Grant Thornton
to continue to provide high quality audits in a way which meets
the needs of its large corporate audit clients.
I am sorry to introduce a further piece of written
evidence, as I am sure that the Committee is already faced with
a large amount of material. However, Simon Michaels of BDO and
I have both referred to the danger in the audit competition and
choice debate of false perceptions being allowed to circulate
and I am very keen to reinforce Grant Thornton's record of and
commitment to delivering high quality audits to large corporates
on a consistent basis (without in any way being complacent about
that record) and its commitment and capability to invest in securing
a significantly higher proportion of FTSE 250 audits (and over
time FTSE 100 audits) and indeed similar investments on an international
basis.
That increase in market penetration can only
come about with a change in the buying patterns of these companies.
We believe that regulatory action is necessary to provide a stimulus
to change those buying patterns and we believe that the package
of proposals we submitted to the Committee are a practical start
point.
December 2010
Summary of AIU findings published in 2009
| Requiring significant improvement / significant concerns
| Good or acceptable standard | Very good standard
| Total |
| PwC | 2 | 11
| 1 | 14 |
| KPMG | 1 | 9
| 1 | 12 |
| Grant Thornton UK | 0 | 7
| 0 | 7 |
| HCW | 1 | 4
| 0 | 5 |
| Baker Tilly | 2 | 3
| 0 | 5 |
| BDO | 0 | 5
| 0 | 5 |
| Deloitte | 1 | 9
| 1 | 11 |
| E&Y | 1 | 10
| 0 | 11 |
| TOTALS | 8 |
58 | 3 | 70
|
| % | 11.4 | 82.9
| 4.3 | 2 |
| 
