Joint audit series, Part 4: Experiences in Austria

Read what a joint audit is in Part 1 of our joint audit series.

Part 2 of the Joint Audit series is dedicated to diversity in the audit market.

In part 3 of the joint audit series, we looked at audit quality.

Our blog post on audit reform in Europe explains the consultation paper published by the European Commission on 12 November.

Market concentration in the Alpine Republic

Change is on the horizon. In the run-up to the new European audit reform, Austria is discussing which measures can contribute to improving audit quality, and increasing the number of auditors available to listed companies.

Understandably, views differ widely here: on the one hand, there are the four largest audit firms ("Big Four"), on the other hand, there are smaller audit firms, the so-called "Challengers".

As in all other countries of the European Union, the audit market in Austria is highly concentrated. In 2020, 184 public interest entities (PIEs) were listed with the Austrian Auditor Oversight Board (APAB). Of these, 90 percent were audited by the Big Four. In addition to Deloitte, EY, KPMG and PwC; BDO, PKF and Grant Thornton are also represented in the market of auditors for PIEs. Mazars in Austria also succeeded in winning an audit mandate in the PIE segment.

Obligated by law

In addition, in Austria, so-called auditing associations are legally obliged to act as auditors of certain legal forms such as cooperatives and savings banks. They are almost always at the start together with an auditing firm.

In the discussion, the Big Four representatives often point out that it could lead to a loss of quality if joint audit was made mandatory. They overlook the fact that Austrian companies in particular have many years of experience in handling joint audit.

On the one hand, legal regulations require the appointment of two independent audit firms; on the other hand, cooperatives and savings banks must each also appoint a cooperative auditing association as an auditor. In most cases, another audit firm is added to issue the audit opinion. For example, about 17 percent of all PIEs in the financial services sector, primarily banks and insurance companies, are audited by more than one audit firm.

Other laws, including the Federal Law on Austrian Broadcasting (ORF Law), also require the appointment of two auditors, who must also be appointed in a tender procedure.

Commerzialbank: the Austrian Wirecard

The past has shown that there have been no quality issues when audits of financial statements have been carried out as joint audits. Austria's biggest accounting scandal in recent years concerns Commerzialbank in Burgenland, where, subject to investigation by the authorities, audit errors are suspected. The bank's figures had been audited by a single audit firm for years. It cannot be ruled out that the errors would have been discovered earlier by a joint audit. In addition, several liability proceedings are pending in Austria, affecting both the Big Four and all other audit firms.

Joint audits have clear advocates at the Austrian Auditors' Oversight Board. At a recent event, an APAB representative said that in his opinion, joint audits improve audit quality. He himself had only positive experiences with this audit model.

A look beyond the PIE segment shows that smaller audit firms and those auditors working as individuals find it difficult to survive in a highly regulated environment. Particularly in the case of cross-border mandates, the involvement of network firms and the monitoring of their quality is a core component of the audit work. Such additional tasks simply cannot be performed by auditors working individually.

Market diversity is the goal

Austria will certainly not dare to go-it-alone in the context of European audit reform. Nevertheless, we hope that upgrading joint audit will also lead to an opening of the Austrian audit market, and thus expand the range of auditors for all large internationally-active companies in Austria.

The market analysis and the results of the review activities carried out by the authorities show that in addition to the Big Four, there are about ten other audit firms in Austria that are capable, in terms of personnel and quality, of carrying out the audit of listed companies alone or jointly, and reliably. For a functioning market, companies that want to contract-out audit services or other valuation or auditing services, should be able to choose from at least eight to ten audit firms. More diversity means more choice.

Read what a joint audit is in Part 1 of our joint audit series in German.

Part 2 of the Joint Audit series in German about diversity in the audit market.

And part 3 of the joint audit series in German about audit quality.