However, it was shortly after the first survey was conducted that CFO-auditor relationships were at their frostiest. “2005 in particular was quite difficult,” recalls Ken Lever, chair of the financial reporting committee at The Hundred Group, the influential club of FTSE 100 CFOs. Lever, who until last November was CFO of £3 billion (€4 billion) UK engineering group Tomkins, uses the term “standoffish” to describe many auditors as they tried to shift from being their clients’ close business partners to a role that included being chief interpreter of all the new governance codes.
What’s more, uncertainly over the first-time application of IFRS led to further tensions. As Lever recounts, audit partners felt they needed to rely heavily on their technical departments before answering client queries, often slowing down discussions. “People were learning as they went along,” he says. “Your partner became an intermediary [between the CFO and the technical department], which caused all sorts of stresses and strains.”
But then the new regime turned a corner. “In 2006 we started to mend fences,” says Lever. “If anything, relationships had started to improve.” Part of the reason, he reckons, was that auditors acknowledged the deterioration of their relationships, having swung dramatically from being “business partners” to “policemen,” and began working harder to re-connect with clients. Encouragingly, CFO Europe’s research confirms a change for the better — for example, in the 2004 survey, nearly 80% of finance executives felt that the advice provided by their auditors was becoming more cautious; in the latest survey, that was 60%.
Even so, “the relationship will never go back to where it was,” says Lever. “The auditors must regret the passing of time when a business relationship was where you sought their advice.”
Some CFOs must also look back nostalgically, say auditors. For one thing, “the more complex accounting standards are not as intuitive and remove certain judgements,” which require more consultation, says Richard Bennison, head of UK audit at KPMG. It is “inevitable that our clients feel this.”
There’s something else that CFOs feel when their audit bills arrive. European companies in general have been spared the massive fee inflation that American companies experienced after Sarbanes-Oxley — where fees among companies complying with Section 404 jumped 66% between 2003 and 2005 — but they haven’t escaped higher costs entirely. “With audit fees, there seems to be an immediate assumption [among auditors] that clients will accept an increase every year,” sighs Jürg Wenger, CFO of Feintool International Holding, a SFr520m (€324m) Swiss industrial technology and systems supplier. “We live in a competitive world, where our customers come to us and tell us the price they’re willing to pay — not the other way around.” (See “Keep a Lid on It” at the end of this article.)
Unfavourable fee trends lead to another CFO bugbear — competition. “I’d like it if there were more,” says Wenger, who recalls his early days as an auditor when there were eight big audit firms. Indicative of a Europe-wide trend, the Big Four — PwC, Deloitte, KPMG and Ernst & Young — handled all but 11 of the UK’s FTSE 250 audits as of August last year.