PracticeAuditPeer blasts audit guidance proposals

Peer blasts audit guidance proposals

Audit committee changes fail to deal with 'underlying' problem of choice

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.

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