The Statutory Accountants are at their wit's end when it comes to advisory services
Both the audit and consulting trades have lofty ambitions to capture the consulting market that continue to be on the rise. However, it often sends the big audit companies on a challenging and ethical tightrope whether to focus on auditing or delivering advisory or doing both within the framework of the new auditor and audit committee responsibilities.
The large global audit and consulting popularly known as the Big 4, want to grow within the consulting industry as there is a growing number of advisory assignments due to the increased regulatory requirements, GDPR, automation and the high number of disclosures required in the current complex corporate environment post the credit and financial crisis.
Taking care of the auditor's credibility
According to a recent assessment made by ALM consulting intelligence the global revenues of the advisory and consultancy trade will double in size from 160 busd to 300 busd by 2019.
Therefore, the large audit companies want to get a piece of the advisory action, as the price of statutory audit services is squeezed and the competition amongst the Big 4 and a couple of second tiers audit companies is fierce in the audit market.
The other problem is to keep arm’s length and actual auditor's independence so that statutory auditors do not get too close to their clients. The number of consultancy assignments in addition to the audit review, the stakeholder perception of whether it constitutes an issue has significant awareness impact.
Several research projects focus on dependence between auditors and consultants and the listed companies; they have as clients. The scenario of most assessments is that the big audit houses in recent years have undertaken more consultancy assignments for their audit clients, thus presenting a potential dependence problem, however in future the advisory cannot exceed 70% pf the audit fees.
One of the arguments for providing advisory is that the auditor could use his deep insight and knowledge of the customer about other forms of advisory. However, in future, the audit committee will be responsible for ensuring a comparable framework on how much advice is taken from the auditors and ensure the critical independence problems for the accountants.
