EY’s market share in the Dax is shrinking after the Wirecard scandal.
(Photo: Getty Images (2), ddp, Mauritius)
The moves to regulate auditors have one central goal: the quality of the balance sheet attestations of listed companies is to be increased. The EU and the federal government want to prevent accounting scandals like the recent one at Wirecard and, among other things, want to heat up competition in the market for auditors. The eternal dominance of the big four, PwC, EY, KPMG and Deloitte, is to be broken.
But after the completion of the first major rotation round in the Dax, it became apparent that this plan had failed. Six years after the EU obligation to change auditors, almost all Dax companies have found a new auditor. There is little to be seen of diversity – on the contrary: concentration is increasing.
Instead of the much-criticized “Big Four”, the “Big Three” will dominate the final exam in the next few years. The de facto exclusion of EY in the awarding of new auditor mandates in the stock market segment means that the company’s market share is constantly falling.
>> Read about this: EY on the sidelines – auditing companies no longer win Dax mandates
The reason is the Wirecard scandal. PwC, Deloitte and KPMG are on the rise. The fact that with BDO one of the pursuers has won a Dax mandate (at SAP) is a ray of hope, but it remains an isolated case.
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There are, of course, reasons for the concentration: Large, globally active corporations need auditors who can provide the necessary personnel and technical capacities for the balance sheet audits around the world. That’s why they turn to large suppliers. But if regulators and the industry are serious about diversity instead of concentration, there are ways to do it.
“Big Four” pursuers such as BDO, Grant Thornton or Mazars must strengthen themselves internationally and in terms of personnel so that they can also be considered as an alternative for the large corporations. But that’s not easy given the intense competition for talent and the need to invest billions in digital testing technology.
What the legislature might prescribe
Legislation could, however, allow prosecutors to participate in audits of large companies. For example, through mandatory “joint audits” in which two companies look at the entire balance sheet according to the four-eyes principle. Or through “shared audits”, where a second auditor checks individual parts of the financial statement for correctness.
These forms of cooperation are unpopular with German corporations and the “Big Four”. But they could be the starting point for bringing more diversity to the auditor market. It is quite possible that the EU Commission will use precisely these tools in the forthcoming next round of regulation.
More: Consulting gives auditors new growth spurt – KPMG catches up with EY