Rentokil defends right to make non-audit decisions

Rentokil Initial, the company which sparked an industry-wide debate about auditor independence, has defended its right to makes its own decisions about what work its auditor undertakes.

The FTSE 100 firm said it was not in favour of further restrictions on its ability to “exercise judgment over non-audit engagements”.

“Additional controls or prohibitions in this area would in the board’s view remove an element of the company’s ability to manage its business affairs for no particular enhancement to the governance process,” the board said in response to the Auditing Practices Board consultation on non-audit services..

Rentokil sparked debate across the audit industry when it switched auditor
from industry heavyweight PricewaterhouseCoopers to KPMG, in July 2008.

KPMG controversially won the audit with a cut-price package which fulfilled all the functions of an external audit, while performing tasks usually performed by internal auditors.

The package shaved 30% off Rentokil’s audit costs, but raised questions about a potential breach of ethical standards.

In November, FRC admitted it was looking into the issue and urged caution for any companies interested in the arrangement.

KPMG has consistently defended the audit, with UK head of audit Oliver Tant commenting in November that the arrangement “does not replace, conflict with or undermine the independence of the external audit”.

“It simply extends our understanding of the business and its controls and hence the breadth and depth of insight we can offer,” he said.

Further reading:

KPMG audit head defends controversial Rentokil role