Figures from key investment companies, including Morley Fund Management and Hermes, as well as the Association of British Insurers, are to attend the discussions held behind closed doors and organised by the DTI as part of its consultation process.
It is understood that many investors will use the opportunity to register their opposition to a liability cap for auditors being included in the companies bill, without wider changes to audit practice. Former ICAEW president Peter Wyman is expected to argue the auditor’s case for a cap in the meeting.
Although the gathering was arranged to help thrash out issues surrounding proposals to offer more protection to auditors, investors believe the consultation document’s mention of competitiveness gives them scope to expand the debate.
Of key concern is the price of audits, which many investors believe is too low and used as a low-cost entry into companies to sell other services.
Institutional investors believe that the practice is lowering the quality of audits and as a consequence is a key reason why auditors want their liability limited further. Investors have said they would welcome an increase in audit fees if it represented a subsequent increase in quality.
Lowering audit cost, said one investment community source ‘may have led to unrealistic time and quality pressures on auditing and, more worryingly, may have led to a talent drain, further affecting quality’.
‘Ensuring the best quality of auditing is critical to limiting liability in practice and must be paramount,’ added the source. ‘Putting the cart before the horse could merely exacerbate the problem.’
The DTI will accept comments on its consultation document into director and auditor liability until 12 March.
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