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James Moore: If audit reform is so bad, why can't bosses be bothered to explain?

James Moore
Wednesday 03 July 2013 01:13 BST
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Outlook British companies are apparently in a lather about plans by the Competition Commission to shake up the way in which their books are audited. To read their responses to the proposal that auditors should be changed every few years – known as mandatory rotation – you would think it represented a disaster akin to the fall of Pompeii.

There's near unanimity in the City that such a move would be a thoroughly bad thing. For a start, bosses say it will be expensive, excessive, even exorbitant when it comes to cost. It would also be a time consuming distraction, both unsettling and troublesome to companies battling hard to turn a buck for their investors. It's just that you just won't find phrases like that in any of their submissions.

Nope, almost to a man they've used exactly the same formulation: "costly and disruptive". You'll see it repeated in submission after submission after submission.

Another example of the City's groupthink? Or, to put a positive PR-style spin on it, because great minds think alike?

Erm, no. It's not just the same buzzwords that are being used. Whole passages of text have been virtually photocopied to make up various companies' submissions. With a few minor tweaks.

They could have all produced thoughtful, well-crafted responses to what is a rather important consultation by no less a body than the Competition Commission. But that's apparently too costly and disruptive for them. So they've instead relied on a standard text, presumably cooked up for them by some flunky in one of their trade bodies. The practice is known as "astroturfing" and it's defined as "the attempt to create an impression of widespread grassroots support for a policy… where little such support exists".

Given that in this case the attempt is to create an impression of widespread opposition to a policy, perhaps we should refer to it as "reverse astroturfing" to be technically correct.

Pirc, the governance consultancy, which highlighted the practice in its "Alerts" circular yesterday, notes that such reverse astroturfing was also at work during the last couple of consultations on executive pay undertaken by the Department for Business, Innovation & Skills.

It's really very hard not to take an extremely cynical view of the practice. If companies genuinely feel that mandatory rotation of auditors is a bad idea, then they ought to be able to say why with reference to their own particular circumstances. Relying on a pre-programmed response which basically amounts to "all reform, bad" simply isn't good enough. It also suggests that companies don't really have much of a case.

They'd just prefer to retain the cosy status quo, to the detriment of their shareholders who, given what happened during the financial crisis, have a clear interest in seeing the quality and robustness of auditing improved.

This is a point that should not be lost on the regulators both in this country and at the EU level. They may in future by justified in dispensing with expensive and time consuming consultations like this in favour of just telling companies the way it's going to be.

After all, that would be much less costly and disruptive for them.

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