MPs keep pressure on non-audit ban

Link: Non-exec wants DTI to shelve Higgs’ report

The influential Commons Trade and Industry Committee said a change in the balance between audit and non-audit work was ‘vital’ and urged institutional investors not to pressure companies to have their reports audited by the Big Four so as to increase competition in the market for accounting services.

The MPs agreed with two fundamental principles put forward by witnesses: that auditors should not audit their own work and not carry out quasi-management responsibilities for the company being audited.

They said there was a danger of audit work being used as a loss-leader but said while it was appropriate to limit other work done by auditors there was no need – yet – to ban it.

They did however seek a complete ban on auditors being involved in the lucrative business of the supply of IT systems, especially those used for companies’ internal financial controls.

The committee, in a report commenting on the government’s white paper on modernising company law, said it was better to have a light touch with an independent body setting standards to uphold the independence of auditors, but said: ‘If regulation seems to be failing, however, we believe that the government should re-consider whether it is necessary to impose statutory restrictions on certain types of non-audit work by auditors.’

The committee also came down against statutory rotation of auditors, with a similar caveat.

The report welcomed the Higgs Report on non-executive directors, believing it would strengthen scrutiny of management decisions benefiting the long-term health of companies, and called on institutional and other investors to try to play a more proactive role in monitoring companies.

Chairman Martin O’Neill said the committee had been considering the white paper and had not taken evidence on the issue of executive pay.

He said they hoped a pragmatic approach to improving corporate governance would work but added: ‘If the changes are not effective then changes of a more draconian nature will be necessary.’

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