IFAC in the News
by David Fernández
Jul 14, 2013
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Interview with Jörgen Holmquist, Chair of the International Ethics Standards Board for Accountants (IESBA)
Interview translated into English by IFAC and conducted by El País in Spanish. For original in Spanish, see: Entrevista con Jörgen Holmquist Presidente del Comité Internacional de Ética del Sector de Auditoría (IESBA)
Jörgen Holmquist is the chair of the International Ethics Standards Board for Accountants (IESBA).
Question. Why is IESBA working on a revision of the Code of Ethics for Professional Accountants (the Code)?
Answer. The issue is not to modify the content of the Code but its structure. It is difficult to read and the purpose of the revision is to make it more accessible, particularly for the small and medium size audit firms. We are in consultation within the sector and regulators to see how we can improve the structure of the Code.
Q. Would you say auditors bear some responsibility for the financial crisis?
A. There are many parties responsible for this crisis: bankers, politicians, supervisors … Auditors also bear their share of responsibility. It is not as much a problem of independence or of ethics in front of their clients but rather of failures in the way audits were performed since the work of auditors should have resulted in better information to judge what was going on.
Q. Have lessons been drawn from the recent mistakes?
A. Auditors are reflecting on how to improve their work. It is still an ongoing process. From point of view of Ethics there are several things to be considered: how to strengthen independence, how to improve rotation rules, how to proceed when irregularities are identified…
Q. Are auditors contributing to restore confidence in the markets?
A. Confidence in auditors is important and necessary since one of the services they render is to make it possible for investors to trust corporate information. This service has not changed and I believe it is generally well accomplished, although in the cases where the role of the auditor is at question it is obviously necessary to find a solution.
Q. Revenues from services other than audit are increasing in many cases, does this put the auditor’s independence at risk?
A. We cannot generalise. It is clearly stated in the Code of Ethics that there are certain services that the auditor cannot provide. We are now reviewing these rules to see if they need to be strengthened.
Q. Would you be in favour of setting a limit to such services?
A. The real challenge is to find a balance between the different sources of income. Revenues from other services should not subsidise audit, rather audit fees should fully cover the cost of audit services. In cases where revenues from other services are very significant there could be a problem, but it is very difficult to say where to set the limit, since the appropriate limit differs depending on the circumstances. Transparency is very important in these cases: let the market know what pays what and then the Audit Committee of the company should decide on such matters.
Q. The European Union has been trying to increase competition in the market for years, what do you think about this?
A. The rotation of the audit firms is not the panacea, it has advantages but also disadvantages. To improve the way the sector works there are more important issues at stake. Moreover, we have to take into account that in the course of the auditor’s engagement with the company audit partners and directors of the company usually change.
Q. Do you believe there is real competition in this industry? How do you explain the increase of revenues of the big companies year after year despite the crisis?
A. It doesn’t surprise me that revenues are stable or increasing because the crisis brings forward demand for more services. If we take a close look to the sector we see a fair amount of competition between small and medium firms. It is maybe less so in the case of the big four where there is more concentration There should be a few more players at that level, but how can this be achieved? There is no easy answer to this question.
Q. There is the feeling that auditors profited from the problem and now they profit from the solution…
A. I see what you are saying but for me the issue is whether the auditors conduct themselves in an ethical manner and whether they produce quality work. Auditors’ workload has significantly increased because of the crisis which has led to more hours worked. The trend points to a reduction of hourly fees. I don’t believe that auditors as a general rule are profiting from the crisis.
Q. The big four are all Anglo-Saxon; do you think it would be interesting to promote a big European firm?
A. It is difficult to create a brand new company that can compete with the big four because what the clients require is a worldwide network that can provide services in any country where they have a presence.