Where are you coming from? Whose side are you on? How can you believe that a 25 year cap on audit relationships is going to make any difference to how they are conducted?
Reader! What will you be doing in 2037? If you knew your company would lose a key client in 25 years, would it make any difference to your work with that client? How about in 20 years? 15? 10? Would that prospect make you, perhaps, a little less inclined to get close to your client? A quarter of a century is a very long time. It's a third of a lifetime. It's more than half a working career.
Audit is an odd kind of business. The role requires you to be sceptical about the hand that feeds you. In virtually every other field, you're supposed to get close to the client. Love him, understand him, butter him up. Keep him onside. Do his bidding. Certainly from time to time tell him what's good for him. But don't expect to make a career out of it. Still less, to make a career out of telling him what's good for his shareholders.
Audit is different. You are unequivocally acting on behalf of shareholders. Ideally, the role would be akin to drug-testing athletes. You would expect a standoffish relationship between the testers and the tested. But auditing is organised by the tested. Management select auditors. Management pay auditors (and pay them handsomely - few partners in big firms take home less than half a million pounds year). Management often pay auditors for a lot more than auditing: the audit partner isn't the only partner whose prosperity rests on this relationship.
Auditors often let investors down. They did so spectacularly in the run-up to the financial crisis - out of 180 European banks that had to be rescued, 180 boasted clean audit reports. The European Commission wants to do something about this. Last year it fielded a radical package of reforms for the audit sector. Topping its list: big companies would have to change to a new audit firm every six years (nine years if the role is split between two firms), shareholders would have to be offered a choice between two audit firms, and big audit firms would be all but banned from non-audit work.
You can imagine the distress this set off amongst the auditors of those 180 banks. All four of them. What a dreadful loss of expertise would ensue as these great firms were broken up (a foreseeable consequence of the audit market being opened up). What enormous expense would be imposed. It's disproportionate. It will do more harm than good. Auditors will perforce be so desperate to replace their clients they'll have to turn themselves into grubby salesmen.
These arguments seem to have made a big impression on Mr Karim, a Conservative and one of eight MEPs representing the North West of England. He is the rapporteur for the EU Commission's proposals. In this role he leads discussion in the Brussels parliament. He consults those affected and if he catches the mood, can significantly mould the parliament's reaction. And he thinks six to nine years is too short. On Tuesday, he proposed 25 years.
He suggested that if something went awry during those 25 years, shareholders could put it right by dint of their annual vote to confirm the auditor. Excuse me whilst I snigger. Shareholders have voted on auditors since the beginning of time. They have never, ever voted against. You can see why. Sacking the auditor is a bit atomic. Institutional shareholders have other means of rocking the corporate applecart. In any case, for sizeable companies, there are only four candidates for the role of auditor and there is very little to choose between them. That won't be changed by a 25 year cap.
But in a six-years-and-you're-out world, it will be much more important for auditors to maximise their reputations amongst shareholders. When, every few years, shareholders get to vote between two audit forms, then the vote will finally acquire some meaning.
Perhaps I am a little aggressive on this point. A group of institutional shareholders led by the Universities Superannuation Scheme is arguing for compulsory rotation of the audit appointment after 15 years, with a competitive tender at the half way point. I could live with that. Let's hope Mr Karim reconsiders.
