David Prosser: Audit report is another indictment of investors
Thursday 31 March 2011
Outlook The report into the audit market by the House of Lords Economic Affairs Committee is long on diagnosis of the problems in the sector, but short on potential remedies. It essentially offers three ideas for encouraging competition, but then sets out some fundamental drawbacks with two of the options.
So, while the Lords suggest that compulsory retendering of audit contracts on a regular basis might force firms to work harder to ensure high standards, they also accept there isn't much point if the result is simply that the "big four" rotate clients between each other. Similarly, it suggests there is a case for joint auditing, with companies required to appoint two auditors, including one non-big four firm, only to point out how bureaucratic and unsatisfactory this system has proved in France.
That leaves the committee's third suggestion: much greater shareholder involvement in the appointment of auditors. To which one might reply, why are shareholders not already involved?
There is something odd about the idea that the owners of a company need to be coerced into properly examining the decisions made by the managers working for them. Sadly, we know this is the case: with one or two honourable exceptions, large institutional shareholders have a hopeless track record of holding companies to account. This is why Sir David Walker was asked to conduct a review ofcorporate governance standards in the aftermath of the financial crisis – some of his recommendations are now being incorporated into the Combined Code.
Would standards improve if companies had to press a handful of their most active shareholders into serving on a committee responsible for auditor appointments and reviews? It's worth a try. For standards need improving – where were the auditors when the banks crashed the economy?
- 1 Bill Clinton portrait features Monica Lewinsky reference, artist admits
- 2 Delhi bus rapist blames dead victim for attack because 'girls are responsible for rape'
- 3 PornHub turns masturbation into energy in bid to save the planet
- 4 Have sex with your iPad thanks to the new sex toy no-one asked for
- 5 Average penis size revealed: Scientists attempt to find what is 'normal' to reassure concerned men
Bill Clinton portrait features Monica Lewinsky reference, artist admits
Delhi bus rapist blames dead victim for attack because 'girls are responsible for rape'
The 'sex selfie stick' lets you FaceTime the inside of a vagina
Kanye West gives guest lecture at Oxford University: 'If I, Kanye West, can remove my ego, I think there's hope for everyone'
'This is what Islam tells us to do': A rare glimpse inside a Saudi Arabian prison – where Isis terrorists are showered with perks and privileges
New theory could prove how life began and disprove God
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
This is what it's like to be dead, according to a guy who died for a bit
Ukip would cut billions from Scottish budget to fund English tax cuts
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
End of the licence fee: BBC to back radical overhaul of how it is funded
iJobs Money & Business
£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
£15000 - £16000 per annum: Recruitment Genius: A Customer Service Advisor is r...
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...