With work progressing in Europe on landmark audit legislation, ACCA and Grant Thornton held a round-table event on 14 May to enable leading UK investors to express their views. Sajjad Karim MEP, rapporteur for the European Parliament’s Legal Affairs (JURI) Committee, also attended, giving him an opportunity to hear investor opinions in person.
The round table was the latest in a series of events organised by ACCA and Grant Thornton with a view to ensuring investor needs and priorities sit at the heart of legislative developments. The investors saw merit in some of the EC audit proposals, but had concerns and questions about other aspects. The issues covered were: mandatory auditor rotation; shared or joint audits; provision of non-audit services by auditors; the need for clear reporting from audit committees and auditors.
A report on the event, co-chaired by Steve Maslin, chair, Grant Thornton UK Partnership Board and Sue Almond, ACCA's technical director, is available.
The main conclusions included the following:
• Investors felt the market structure had failed in relation to the provision of audit services and some regulatory intervention was needed.
• Auditor reporting needed to be enhanced with more information given on audit judgements.
• The role of audit committees in representing shareholder interests in the audit process was crucial. Some committee chairs needed to be more aware of this and 'open up' more to investors.
• While there should be an upper limit on length of an auditor's tenure, audit committees should be given considerable flexibility to justify the retention of auditors to that limit.
The discussion reflected strongly the importance investors place in the role of the audit committee to represent their interests, given that, as one institutional shareholder pointed out: ‘We cannot speak to all the auditors of companies we hold shares in. We have to trust the audit committee – they should be accountable to shareholders and explain why a firm is being kept on. We have to rely on the audit committee to stand in our shoes and to represent our interests in calling the auditors to account and ensuring the auditors are doing their job properly and effectively.’ Investors would particularly like more information on key audit issues, specifically areas where judgment has been applied. However, consensus was lacking on where this should be given.
The event was a key part of ACCA's on-going stakeholder engagement activity on the EC audit proposals, which will continue throughout the year. Facilitating debate by bringing together central players such as investors and key European parliamentarians is an important part of this.