Traditionally the audit world has, in many ways an extremely simple global auditing framework, even though the global companies could be quite complex in their auditing requirements. The current soap opera provided by the local KPMG offices and EY International proves that the simplicity and complexity go hand in hand.

First you have The Big Four (Deloitte, PwC, EY and KPMG) and then all the other audit companies. The big 4 first enjoys the delicacies and swallows all the goodies on the inspector’s plate and leaves the leftovers to the second and third tier audit companies.

Enter push and shove
The second and third tier audit companies can on the other hand have a nice and handy local business and are generally satisfied with the menu. This pecking order is will probably will change when the EU audit liberalisation is fully implemented.

However when the billions of audit euro’s need to be counted and shared amongst the top of the global audit partners in the future, the second and third tier audit companies probably will not leave the audit stakes and the stage to the Big Four.

A good example is provided by the current Bean Counter Soap Opera, experienced by the Danish corporate world; when EY International offered to buy the Danish pastry KPMG and merge with the local partners.

Provision of non-audit services is introduced
The pressure on the big audit companies is due to reduced auditor fees, severe competition on the advisory and consultancy activities. However, the EU commission's agenda will result in significant changes (over the coming years) to increase the independence, relevance and quality of audit. The EU effort should provide for a robust framework for auditor independence, accountability, transparence, shareholder reporting, mandatory rotation and corporate governance by prohibiting advisory services in relation to non-audit services.

To a large degree the requirement that auditors improve the quality requirements has been left to be decided by each country by govt. legislation or by the local CPA Associations in the EU. In Denmark the local CPA Association, has presenting 17 proposals for quality improvement, Governance in accounting firms, and focus on the new audit trends.

The new rules also provide tools to limit the risk of conflict of interest. To avoid the risk of self-review, several non-audit services are prohibited under a strict 'black list', including stringent limits on tax advice and services linked to the financial and investment strategy of the audit client. In addition, a cap on the provision of non-audit services is introduced.

Therefore when the global audit giants Deloitte, PwC, EY and KPMG and the second level EU audit companies probably will galvanize into action when the EU directives are in force. They probably are currently in an assessment mode and start to swing. The game called Who has the biggest and most prestigious customers, and who can attract the greatest stock-listed stars? will soon begin. The Big 4 will not willingly allow the mutual shifts in size and prestige.

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