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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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