PracticeAuditInvestors ‘do care’ about audit competition

Investors 'do care' about audit competition

An investor body has refuted claims that shareholders contribute to Big Four dominance by taking no interest in the audit tendering process

INVESTORS HAVE HIT back at accusations that their lack of interest promulgates concentration at the top of the audit market.

Big Four dominance and lack of choice are the current bugbears of critics and some have accused shareholders – through indifference to the tendering process – of allowing companies to keep the same auditor for many decades, thereby entrenching the quartet’s foothold.

Liz Murrall, director of corporate governance and reporting at the Investment Management Association, strongly refutes this claim. “Investors do care”, she insisted, saying “no one wants to see an auditor in place for 50 years”.

However, Murrall warned that investors cannot engage with every company and therefore cannot be expected to watch over audit committees’ shoulders to check every appointment. “Shareholders want the option of being involved but don’t want consultation to be mandated: they don’t always have the time or resources.”

Transparency is the order of the day, according to the IMA. If audit committees increased disclosure about the tender process, shareholders would be more motivated and able to engage, boosting choice and competition in the market.

The IMA is in favour of more frequent tendering but has warned that overly frequent bidding could depress prices, running the risk of lower quality audits.

Murrall acknowledged that the majority of shareholders do not exert pressure when it comes to audit but said the current system – in which investors are called upon to ratify appointments at annual general meetings “after the event” – leaves a lot to be desired.

 

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