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By Adrian Jenkins
Some agency groups are still imposing restrictions on their client’s choice of compliance auditor to just the ‘Big Four’. Should marketing procurement reject these terms?
‘Big Four’ only clauses
In the statutory audit market, ‘big four only’ clauses have now been outlawed as unnecessarily restricting competition and choice.
In September 2018, the Institute of Chartered Accountants in England & Wales (‘ICAEW’) wrote to the CFOs and General Counsels of all the ‘Big Six’ global media and advertising agency groups (WPP, Omnicom, Publicis, Dentsu Aegis, Interpublic and Havas), along with national and international bodies representing advertisers and agencies, over a clause commonly found in contracts put forward by agencies to their clients.
The wording seeks to include terms that restrict the client’s choice of compliance auditor (commonly referred to as a ‘financial auditor’). In particular, these template contracts specify that only one of what are commonly referred to as the ‘Big Four’ (PwC, Deloitte, KPMG and E&Y) or ‘nationally or internationally recognised’ accountancy firms may be chosen to perform the compliance audit.
The ICAEW’s position was (and still is) very clearly stated in its letter:
“We consider such clauses to be unnecessary to ensure quality service, and unhelpful in terms of restricting market choice and competition. Indeed, in the statutory audit market, ‘big four only’ clauses have now been outlawed as unnecessarily restricting competition and choice.
Anyone engaging the services of Chartered Accountants, or firms of Chartered Accountants, can be assured that those members and firms are held to the same exacting standards, regardless of whether they are sole practitioners, small firms, or large firms. Size, of itself, should not be relevant for discounting who to invite to tender for or undertake work.”
So to summarise:
Let’s be clear, a compliance audit is not a statutory audit, but it indicates the direction of travel for both legislators and regulators, at least in the EU, the world’s largest trading bloc, that more competition in the audit market is required, rather than less.
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So, more than eighteen months on, what have advertisers been telling us about their experiences? Well, broadly speaking, ‘Big Four Only’ audit clauses remain a significant issue. We have received numerous reports that these restrictive clauses remain in standard templates put forward by agencies. While they are now less common in media agency contracts, they still exist. They remain as prevalent as ever in contracts put forward by creative, events, PR and other below the line agencies, including ones that are part of the Big Six agency groups.
From what we can see the improvement on the media front has come from trade bodies such ISBA and the ANA ensuring that the template contracts recommended to their members are free from such restrictions, coupled with educational events that help marketers and marketing procurement professionals understand that, if nothing else, accepting anti-competitive language in their commercial contracts is not a sustainable business practice. It has come too from agency groups that actively seek progressive relationships with their clients, whether locally, regionally or globally.
Given that more of the marketing budget is spent on media than any other element, it’s understandable that it will be the first area for focus and change. Nevertheless, significant funds are spent with above the line (‘ATL’) and below the line (‘BTL’) agencies and it’s just as important to ensure restrictions on the choice of auditor don’t exist there too.
In fact, given that these agencies often invoice significant amounts based on estimate and reconcile to actuals after the activity has been delivered, we’d argue that it’s just as important that appropriately skilled individuals and firms are appointed to audit these agencies. Based on what we are seeing it would be timely for ISBA, the ANA and WFA to increase support to members for standard contracts and educational events focused on ATL and BTL agencies.
So, what should marketing procurement professionals and marketers do when faced with an audit clause that contains ‘Big Four Only’ or similar language that restricts their choice of compliance auditor?
This approach provides checks and balances for both clients and agencies while encouraging fair competition and high quality audits which, over time, will be to the mutual benefit of all concerned.
There is still much work to be done before all agency contracts are free from restrictive practices and we encourage advertisers, agencies, trade bodies and compliance auditors to play their part in consigning them to history.
About the author
Adrian Jenkins qualified as a Chartered Accountant with Coopers & Lybrand (now PwC) and has held senior positions in Finance focused on Procurement and Supply Chain, Marketing and Business Process Transformation.
He founded Financial Progression as a firm of Chartered Accountants in 2008 and has developed it into a practice specialising solely in contract compliance audits of marketing and advertising agencies.
Adrian has conducted contract compliance audits in the UK, USA, Canada, Ireland, the Netherlands, Denmark, Germany, France, Spain, Italy, Turkey, Russia, South Africa, Dubai, China, Singapore and Brazil.
Joint WFA Research Survey
In 2019 Financial Progression worked with the World Federation of Advertisers (WFA) on a key piece of peer research: a survey of perceptions and business practices of some of the world’s largest advertisers around the hot topic of trust and financial transparency between brand and agency.
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The views and opinions expressed are solely those of the contributor and do not necessarily reflect the official position of Producers & Procurers iQ or imply endorsement from the publisher