06/02/2008 - 22:00

Auditors struggle to digest listings

06/02/2008 - 22:00

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The dramatic rise in the number of listed companies based in Western Australia is having a marked impact on the audit sector, putting huge stress on the professionals involved and influencing the shape of the industry.

Auditors struggle to digest listings

The dramatic rise in the number of listed companies based in Western Australia is having a marked impact on the audit sector, putting huge stress on the professionals involved and influencing the shape of the industry.

Last year, 125 WA-based companies floated on the Australian Securities Exchange, making the state home to around 700 listed companies – roughly the same as NSW, which has four times as many auditors.

The increase, which follows about 200 floats during the two previous years, has had a big impact on the local profession, prompting auditors to raise the issue with the market’s key watchdog, the Australian Securities and Investments Commission.

The huge rise in workload, notably at the smaller end of the market, has also been viewed as a key reason behind the major developments in the mid-tier market, with several partnerships changing network allegiance in the past year.

Auditors expect further consolidation of the mid-tier sector as the tightening regulatory regime – driven largely by global forces – makes the responsibilities of an auditor even more onerous.

The changes are also driving up fees to clients as overworked auditors become more particular about the jobs they take on.

“We have gone through a period of unprecedented buoyancy in the WA market in relation to the number of floats,”  BDO Kendalls audit partner Glyn O’Brien said.

BDO is a case in point. Last financial year, the firm’s WA office was created from the merger of the local BDO and Horwath partnerships and ended up with a combined 96 audit clients.

By the end of calendar 2007, that client base had jumped to 136, even though the market had clearly cooled by then.

Grant Thornton audit partner Jeff Vibert said the extraordinary environment of the past few years had positive and negative elements.

“In some ways it’s the best of times and worst of times,” he said.

“Lots of floats mean every firm has lots of opportunities.”

But, like every boom, the rush of new work has created challenges.

Mr Vibert said even experienced auditors found it hard to keep pace with regulatory changes taking place, forcing those in the sector to seek, through mergers or networks and allegiances, the scale and resources required.

Clients too, overseen by boards with their own increasingly onerous governance demands, were prompting change in the sector, becoming more savvy in terms of what they wanted from their auditors.

 “The reality is the bigger firms will get bigger,” Mr Vibert said.

“What was previously described as mid-tier will split.

“The bigger sort of audit firms will become the middle ground and other firms will drop to a smaller group.”

A key pressure point for the sector has been created by regulatory deadlines under which listed companies, large privates, not-for-profits and the government sector, are increasingly competing for auditors to sign off their annual returns at the same time.

At the smaller end of the market, deadline issues were especially exacerbated by new limitations on what auditors can do to help their clients meet deadlines.

The huge number of small under-resourced clients was part of the issue for WA auditors, where the average partner could oversee five to six times the number of clients than their Sydney peers.

“That is a challenge on its own,” Mr Vibert said. “That is what the profession is saying to ASIC, you have to understand the Perth market.”

Institute of Chartered Accountants of Australia WA general manager Con Abbott said the market environment in Perth had created big challenges for auditors.

Mr Abbott said the tightening deadline time frame was uniform no matter what the market capitalisation of a company.

“Anyone who can calculate knows we already have an issue with the number of listed companies and the available audit population,” he said.

“There should be recognition that some of these smaller companies are not having the same impact as a BHP Billiton Ltd, and yet the reporting deadlines are the same.”

Mr Abbott said he was concerned about the impact of the current environment on the younger crop of auditors who may not view the profession as a sustainable career if partnership is seen to come with long hours and huge responsibilities.

“Young people will be observing that – what are the risks and rewards?” he said. “That is an issue going down the track.

“Rolling forward to 2014 or 2018, I would put on the table that will have an impact.

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