1. EGIAN European Group of International Accounting Networks and Associations What is EGIAN?  21 Members Europe Global  Combined turnover€9.4 bn €25.7 bn  Combined staff106,000 311,000  Big Four average €21.0 bn  Largest – PwC €26.1 bn

2. EGIAN European Group of International Accounting Networks and Associations European Institutions  European Commission – Civil Service  European Parliament – Elected  Council of Ministers – Member States

3. EGIAN European Group of International Accounting Networks and Associations Background-Audit Reform- Green Paper - Proposal  2008 crisis-where were the auditors?  Bank losses, 2007 to 2009 – clean opinions  Intrinsic weaknesses were not reported  Role of audit needs to be reviewed

4. EGIAN European Group of International Accounting Networks and Associations Big Four market shares Market Caps EU27G8USChina  FTSE 350-eq 83%84%85% 14%  €115 m + 79%80%81% 14%  €55 m + 63%75%75% 14%

5. EGIAN European Group of International Accounting Networks and Associations Market Stagnation Market shares (Global revenues) 20042009  PwC24%23%  Deloitte22%23%  E&Y19%19%  KPMG18%17%  BDO 4% 4%  GTI and RSM 3% 3%  Praxity-Mazars-MRI 2% 3%  Crowe Horwath 2% 2%  Baker Tilly 2% 3%

6. EGIAN European Group of International Accounting Networks and Associations Service sectors-largest firms  Baker McKenzie$2.1 bn  S&P$2.6 bn  Black Rock$4.7 bn  McKinsey$6.6 bn  PwC$26.1

7. EGIAN European Group of International Accounting Networks and Associations Comparison-audit and law firms Global market shares Law-top 50 Audit-top 24  Biggest 5 19% 75%  Next biggest 5 28% 20%  The rest 53% 5%

8. EGIAN European Group of International Accounting Networks and Associations EU-Big 4 country market shares–FTSE 350 equivalent  100%-Czechia, Estonia, Hungary, NL, Slovakia  97% - Italy, UK  96% - Portugal  94% - Sweden  89% - Denmark  87% - Spain  82% - Germany  58% - France

9. EGIAN European Group of International Accounting Networks and Associations Issues for the Regulators at the top end of the market  Are Big 4 too “close” to their clients?  Scepticism?  Lack of choice  Systemic risk posed by large companies  Impact on capital markets of Big 4 collapse  Market stagnation – UK FTSE 100 – 50 years  Smaller firms cannot now challenge without regulatory intervention  What should that be?

10. EGIAN European Group of International Accounting Networks and Associations Scope of Green Paper-Draft Proposals Five themes  “Clarification” of the role of the auditor  Reinforce independence of the profession  Support the development of SME’s  Reinforce international cooperation, and  Promote change in the audit market structure

11. EGIAN European Group of International Accounting Networks and Associations Proposals for regulation to change the audit market Large PIE – Market Cap - €1 bn +  Joint audit – one big, one small (less than 15% audit fees from large PIEs)  Audit engagement not to exceed 9 years  Regular tendering  Limit non-audit services to large PIE audit clients (size and scope)

12. EGIAN European Group of International Accounting Networks and Associations EGIAN activities  Position paper on audit reform  Response “work group”  Meetings with MEPs, Commission, country ambassadors, other European organisations  Contacts with FEE and national audit institutes  Country initiatives  Relations with BDO and GTI  Six-monthly full meetings

13. EGIAN European Group of International Accounting Networks and Associations Strategy considerations  Nexia’s global turnover same as Big 4 increase  Extrapolate over ten years – where?  Audit requirements for smaller companies reducing  Is audit a “sustainable” option for EGIAN members?  What sort of network do you want to be?  Size is relevant  If top end of market opens up – mergers, breakaways from Big 4, considerable investment? Are we ready?