Peer blasts audit guidance proposals

Baroness Noakes

Tory Treasury spokeswoman Baroness Sheila Noakes has attacked the Financial Reporting Council's plans to amend guidance meant to help audit committees look beyond the Big Four when choosing auditors.

‘They’re trying to find solutions in a way that does not affect the underlying problems, which is that there are four large firms and everyone would like there to be more,’ said Baroness Noakes, who is also a senior FTSE audit committee member.

The FRC wants to amend the Smith Guidance, which was drawn up in 2003, to assist directors serving on audit committees in carrying out their role. The changes stem from the recommendations made by the Market Participants’ Group, which was tasked with finding solutions to limited audit choice in the UK.

One of the FRC’s recommendations called for audit committees to regularly assess the risk of their auditor leaving the market and put contingency plans in place.

But Baroness Noakes said this would do little to improve auditor choice, as large companies would be forced to tender the audit to one of the other giant firms anyway.

She also criticised the suggestion that audit committees should tell shareholders why they have recommended the appointment, re-appointment or removal of an auditor.

Baroness Noakes said this created ‘artificial pressures for tenders’ that would be ‘dangerous and costly for firms and fantastically time consuming for companies’.

FRC chief Paul Boyle said there were some cases in which companies could not use an alternative Big Four source for an audit because they had already given these firms other work.

‘It could breach independence rules. Committees might like to think about whether they have left themselves a real choice in the event of their existing auditor withdrawing from the market,’ he said. He added that the FRC did not suggest more frequent tendering of contracts.