PracticeAuditIndustry calls for audit transparency

Industry calls for audit transparency

Investors are increasingly calling for improvements to the transparency of public company audit reports

Some are suggesting that tenders for audits become more public, while others
want the details of audit committee members opened up.

The subject was discussed at this month’s
International Organisation of
Securities Commissions
conference, along with other topics including the
dominance of the Big Four and issues that are changing the audit landscape.

The question of how to present a statutory audit never seems to go out of
fashion. Gerald Russell’s Audit Quality Forum led requests on the subject in a
report last year, and Peter Butler, CEO and founder of Governance for Owners,
renewed those requests at the conference.

Butler suggested audit reports go a step further towards transparency, so as
to reflect the range and skills of audit committee members, the performance
review of an audit committee, along with details of meetings they had attended
and what they covered during those meetings in the course of their duties.

‘The report should also cover the appointment of auditors, the frequency of
tenders, the process of tendering and the engagement letters, as well as
contingency plans,’ said Butler.

Audit committee members are not closely scrutinised in terms of their
qualifications, although their identities are publicly available. Butler’s view
on tendering could ultimately prove more controversial.

In its report from the Market Participants Group, the Financial Reporting
Council has proposed that details of tenders become part of mainstream
disclosure.

Investors have argued that those details, particularly where banks are
concerned, might reveal that companies are institutionally prejudiced against
other smaller firms.

Any move to open up that process could reveal issues that the industry does
not wish to address.

One key theme of the conference was a feeling from companies that they are
poorly treated by the dominance of the Big Four.

Daniel Bouton, CEO of French Banking giant Société Générale, with $90bn
(£45.5bn) market capitalisation in 77 countries, explained how his company had
grown about 2.4 times in income in the past decade. But the price of audit has
gone up at least three times the original price.

He described himself and others like him as victims. ‘As a manager and
issuer, I feel trapped by the oligopoly,’ Bouton said.

Bouton believes that anti-concentration rules should apply to the Big Four.

UK regulators have, however, shown little interest in disrupting the UK audit
market, despite figures suggesting that the Big Four account for almost £3 in
every £4 spent on accountancy in the UK.

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