EGIANEuropean Group of InternationalAccounting Networks and Associations

What is EGIAN?

21 MembersEurope

Global Combined turnover €9.4 bn €25.7 bn

Combined staff 106,000 311,000

Big Four average €21.0 bn

Largest – PwC €26.1 bn

EGIANEuropean Group of InternationalAccounting Networks and Associations

European Institutions

European Commission – Civil Service

European Parliament – Elected

Council of Ministers – Member States

EGIANEuropean Group of InternationalAccounting Networks and Associations

Background-Audit Reform- Green Paper - Proposal

2008 crisis-where were the auditors?

Bank losses, 2007 to 2009 – clean opinions

Intrinsic weaknesses were not reported

Role of audit needs to be reviewed

EGIANEuropean Group of InternationalAccounting Networks and Associations

Big Four market shares

Market Caps EU27 G8 US China

FTSE 350-eq 83% 84% 85% 14%

€115 m + 79% 80% 81% 14%

€55 m + 63% 75% 75% 14%

EGIANEuropean Group of InternationalAccounting Networks and Associations

Market Stagnation

Market shares (Global revenues)2004 2009

PwC 24% 23% Deloitte 22% 23% E&Y 19% 19% KPMG 18% 17% BDO 4% 4% GTI and RSM 3% 3% Praxity-Mazars-MRI 2% 3% Crowe Horwath 2% 2% Baker Tilly 2% 3%

EGIANEuropean Group of InternationalAccounting Networks and Associations

Service sectors-largest firms

Baker McKenzie $2.1 bn

S&P $2.6 bn

Black Rock $4.7 bn

McKinsey $6.6 bn

PwC $26.1

EGIANEuropean Group of InternationalAccounting Networks and Associations

Comparison-audit and law firms

Global market shares

Law-top 50 Audit-top 24

Biggest 5 19% 75%

Next biggest 5 28% 20%

The rest 53% 5%

EGIANEuropean Group of InternationalAccounting Networks and Associations

EU-Big 4 country market shares–FTSE 350 equivalent

100%-Czechia, Estonia, Hungary, NL, Slovakia 97% - Italy, UK 96% - Portugal 94% - Sweden 89% - Denmark 87% - Spain 82% - Germany 58% - France

EGIANEuropean Group of InternationalAccounting Networks and Associations

Issues for the Regulators at the top end of the market

Are Big 4 too “close” to their clients? Scepticism? Lack of choice Systemic risk posed by large companies Impact on capital markets of Big 4 collapse Market stagnation – UK FTSE 100 – 50 years Smaller firms cannot now challenge without regulatory intervention What should that be?

EGIANEuropean Group of InternationalAccounting Networks and Associations

Scope of Green Paper-Draft Proposals

Five themes

“Clarification” of the role of the auditor Reinforce independence of the profession Support the development of SME’s Reinforce international cooperation, and Promote change in the audit market structure

EGIANEuropean Group of InternationalAccounting Networks and Associations

Proposals for regulation to change the audit market

Large PIE – Market Cap - €1 bn +

Joint audit – one big, one small (less than 15% audit fees from large PIEs)

Audit engagement not to exceed 9 years Regular tendering Limit non-audit services to large PIE audit

clients (size and scope)

EGIANEuropean Group of InternationalAccounting Networks and Associations

EGIAN activities

Position paper on audit reform Response “work group” Meetings with MEPs, Commission, country

ambassadors, other European organisations Contacts with FEE and national audit institutes Country initiatives Relations with BDO and GTI Six-monthly full meetings

EGIANEuropean Group of InternationalAccounting Networks and Associations

Strategy considerations

Nexia’s global turnover same as Big 4 increase Extrapolate over ten years – where? Audit requirements for smaller companies

reducing Is audit a “sustainable” option for EGIAN

members? What sort of network do you want to be? Size is relevant If top end of market opens up – mergers,

breakaways from Big 4, considerable

investment? Are we ready?