CFO Europe Magazine

Mending Fences

CFO-auditor relationships aren't as fractured as they once were. But there's still room for improvement.

Janet Kersnar
CFO Europe Magazine

March 3, 2008

Shortly after Daniel Bednar clinched a new job as deputy CFO at Bureau Veritas, CFO François Tardan assigned him to a project that would have left other, less hearty finance executives heading for the door. It was 2004 and companies across Europe were facing a veritable mountain of auditing work thanks to the knock-on effects of the Sarbanes-Oxley Act, not to mention the looming EU deadline to adopt IFRS. Under these conditions, the relationship between companies and their external auditors was reaching a breaking point.

Bureau Veritas, a Paris-based professional services firm specialising in industrial testing and certification, was no exception. Bednar, having recently arrived from an auditing firm, sensed the tension at his new company and how "[Tardan], who does not come from an audit background, was very frustrated with what he considered back then to be pure bureaucracy, requiring things that weren't helping the business."

Bednar's new project didn't just involve repairing the company's relationship with its auditors. He also needed to improve the quality of the audit, as Bureau Veritas' private equity owners were preparing it for an IPO. And he was expected to do all this without letting fees spiral out of control, as they were at numerous other companies.

To shake things up, he first asked PricewaterhouseCoopers — one of the firm's two lead auditors — to re-tender for its business, and then he went looking for a new co-lead auditor (as required by French law), choosing Bellot Mullenbach & Associés, a small, local firm. Bednar also began a multi-year review of the company's financial systems and controls to help streamline the auditing process. This would eventually involve, among other things, rolling out a new ERP system across its offices in 170 countries.

Today, Bednar gives his auditors the thumbs up. "They have really contributed to helping us raise the bar," he says. This was a timely improvement given Bureau Veritas' IPO in October — the first in Europe following the summer's subprime turmoil.

That's not the only reason both Bednar and Tardan are pleased. "Our group audit fees have remained stable," boasts Bednar. "We have been spending a little over €1m every year even though our turnover has grown from €1.3 billion when I joined to more than €2 billion now. That's a 30% reduction despite all the increased regulations. I'm very happy with that."

Not many CFOs can say the same, according to new research from CFO Europe. In a poll of nearly 200 finance executives of medium-sized and large firms from across Europe, nearly 75% said their fees have risen over recent years. And while 49% report that they have been spending an increasing amount of time with their lead auditors — which can be good or bad, depending on the circumstances — 36% said they feel they aren't getting value for money and another 22% are undecided.

Yet while CFO-auditor relationships aren't as good as they could be, they have been worse. When CFO Europe ran a similar survey in late 2004, 28% of respondents said that their relationship with external auditors had changed for the worse over the previous year; in our new survey, only 17% said the same.

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.

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