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January 11, 2011

HoL: Investors call for laws to boost competition

Large accounting networks could compete with
the Big Four with the help of regulatory intervention, investors
told the UK House of Lords inquiry into audit market
concentration.

Standard Life head of governance Guy Jubb said
there could be a larger number of networks, beyond five or six,
adding that it is up to the firms to organise themselves to compete
with the Big Four.

The investors agreed that intervention is
needed to break market concentration and that a clear ultimatum has
to be given to the Big Four. They said they would however favor
mediatory tendering over auditor rotation and joint audits.

Witnesses at this week’s session also said
they would like to see greater transparency in company reports and
the inclusion of a special section in the report with the audit
committee disclosing why they have decided to choose a certain
auditor. “Annual reports are currently becoming marketing reports”
said one of the investors.

Jubb also said there is currently very little
engagement between investors and audit committees on the choice of
auditor and audit matters.

When asked about the financial crisis and what
role accountants played, investors pointed out large reliance on
rules but did not point the finger at auditors.

The investors emphasised that auditing
principals should come before rules. They expressed concern over
auditors working around the rules, “hiding” behind the rules and
called for greater prudence. “Rules should help principals and this
is not the case at the moment,” Hermes Equity Ownership Service
chair David Pitt said.

 

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