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 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Weather bomb in pictures: Storms cuts power for tens of thousands – and snow is on the way
Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
Russell Brand was rendered speechless on Question Time by this man
Fury at Airbus after it hints the super-jumbo may be mothballed
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Shock poll shows voters believe Ukip is to the left of the Tories
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Ukip candidate jokes about 'shooting peasants' in racist and homophobic rant
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
Germany sees 'visible rise' in support for far-right extremism in response to perceived 'Islamisation' of the West
iJobs Money & Business
£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...
£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...
£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...
£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...