FTSE 350 avoid compulsory audit tendering

2012-03-15 Author: BCAA


The UK’s largest listed companies will not be forced to put their audits out to tender, but will instead be expected to voluntarily renegotiate audit contracts every 10 years.

The government yesterday said that it would not place a statutory requirement on FTSE 350 companies to retender their audits, but indicated companies should follow a ‘comply or explain’ code of practice.

Speaking in the House of Lords, business minister Baroness Wilcox also said the government would not introduce a statutory requirement for banking auditors to discuss their clients with regulators, including the Bank of England. Instead, she said the government supported the code of practice that now sees auditors meeting twice a year with regulators.

Baroness Wilcox said the code of practice appeared to be working, but the government would ‘be watching closely’ to ensure appropriate levels of communication between auditors, the FSA and the Bank of England.

The minister made her comments during a debate in the House of Lords yesterday on last year’s report from the Economic Affairs Committee on audit market concentration.

During the debate, Baroness Hogg, chairman of the Financial Reporting Council, said she was opposed to the break-up of the Big Four accountancy firms – PwC, Deloitte, KPMG and Ernst & Young – as it would damage audit quality.

In a side swipe against the European Commission market commissioner Michel Barnier’s proposals for prescriptive changes to the audit market, she warned against ‘shooting ourselves in the foot’, saying ‘we want to empower choice of auditors, not to simply disrupt it’.

Hogg said: ‘We believe that clearer guidance on non-audit services will both deal with conflicts of interest and stimulate market development.’

There was also endorsement of the ‘comply or explain’ regime for audit tendering. ‘We will shortly be publishing proposals which do not enforce a merry-go-round of compulsory auditor rotation but request companies to retender their audits after eight to 10 years,’ said Hogg. ‘We must not ‘disempower’ the audit committee from choosing the best firm for the job.’