Even more cut & paste lobbying: non-audit work

I've had a look back at responses to the Auditing Practices Board consultation in 2009 on auditors undertaking non-audit work, quite a controversial issue for corporate governance types, as some recent votes demonstrate. Once again, I can see the GC100's influence on PLC submissions.

Here's what a chunk of the GC100 submission:

We do not believe that the provision of non-audit services by accounting firms to their audit clients currently impacts on confidence in the independence of auditors. Provided a company’s audit committee applies, or explains its reason for not applying, the Combined Code and develops and implements a policy on the engagement of the external auditor to supply non-audit services, which follows the FRC’s Guidance on Audit Committees, the provision of non-audit services should not impact on the independence of the auditor employed by that company.
In fact, we believe that there are instances when the use of its auditor for non-audit services is positively advantageous to the company and its shareholders, and does not compromise auditor independence. With the auditor’s detailed knowledge of the company’s business, the non-audit service can be provided more effectively. Further, we believe that in many instances, appointing another accounting firm would be very inefficient and may expose the company to greater risks as the accounting firm lacks the detailed knowledge of the business which the auditor has.
In addition, engaging an auditor who has detailed knowledge of the company’s business is beneficial to management as (depending on the nature of the non-audit work in question) it prevents them from needing to spend time briefing a firm unfamiliar with the business before it can commence the non-audit work, provided there are suitable provisions in place to ensure that the auditor’s independence is maintained. As a consequence of engaging the auditor, the company saves fees and the non-audit work can be undertaken sooner, which is advantageous to both the company and its shareholders.

I've highlighted a few key phrases. You can either whack them into Google yourself, which should result in some individual company submissions coming up, or here are few of my own excerpts.

Severn Trent

“there are instances when the use of its auditor for non-audit services is positively advantageous to the company and its shareholders”

“there are instances where appointing another accounting firm could be inefficient and might expose the company to greater risks…”

Xstrata

“We believe that in many instances, appointing another accounting firm would be very inefficient and may expose the company to greater risks as the accounting firm lacks the detailed knowledge of the business…”  

Standard Life Plc/Standard Life Investments

“We believe there are instances where when engaging its auditor for non-audit services, within the terms of the policy, is advantageous to the company and its shareholders… As a consequence of engaging the auditor, the company may save on fees and the non-audit work can be undertaken sooner.”

Cut & paste lobbying links

LAST UPDATE: 15/8/13

In case anyone else is interested in following this stuff up, here is a bunch of links to my previous blogs, and (where still available) directly to responses that have similarities.

Blog on PLC responses to BIS consultations on exec pay.
Blog on PLC responses to Competition Commission work on audit.
Blogs on IIC/mandatory rotation/"costly and disruptive" here, here and here.
Blogs on FRC consultations, here, here and here.

Unfortunately it's not possible to link directly to the submissions to the BIS consultations, where there were loads of generic responses on the exec pay reforms, but I have the PDFs if anyone is interested. I'll update the list below and re-post each time I find something new. 

Competition Commission audit provisional findings
GC100 submission
GSK response
SABMiller response

FRC Corp Gov Code/Audit Comm/Stew Code consultation (2012)
Hundred Groups response (all three)
Rolls Royce response

GC100 (all three)
BT response (all three)

ICGN (CG Code & Audit Comms)

IMA (CG Code & Audit Comms)
ICAEW (all three)

ICGN (Stew Code)
Hermes (Stew Code)

FRC Corp Gov Code (2010)
Logica
Sainsbury's

APB auditors and non-audit work (2009)
GC100 submission
Severn Trent
Xstrata
Standard Life Plc/Standard Life Investments
 

South London bus etiquette

OFF-TOPIC!!

My bus journeys home to Peckham (which I sometimes live tweet, you lucky people) have given me a new perspective on social behaviour. The thing that has particularly interested me lately is "seat swapping".

Quite often the 78 (or the South London Comet, as it is not known) is quite busy. This means, inevitably, you end up sitting next to someone, rather than getting a whole double seat to yourself. But what happens when people get off the bus and a free double seat opens up? What I have noticed is that, quite often, people move to the free seat. I am talking here about individual people, not two people traveling who want to sit together.

One way of looking at this is that it seems a bit rude to move. It's like saying that at the first opportunity you want to stop siting next to person you are currently sitting next to. The implication could be, even, that they smell a bit. For these reasons I have always felt a bit rude engaging in the South London bus journey equivalent of Runaround. I also don't really remember this happening much in the past. But it's definitely the case that it happens all the time now. In fact I bet I see it on pretty much every journey.

My own situation is also complicated by the fact that I take the bus to almost the end of the route. Once you get past Rye Lane the top deck, where I usually sit, is really empty. Which means that if I started off sitting by someone and I don't move it feels a bit weird. Of all the seats I could be sitting on on a virtually empty top deck, I'm sitting next to you. See the problem?

So, I'm slightly embarrassed to report, I have joined the seat switchers. What's more, because it feels a bit weird, again, to move seat late in the journey I tend to do this fairly quickly when granted an opportunity. Interestingly (honestly) I feel that the herd-like nature of humanity means that we may be reaching a tipping point on the 78 where the default position is to switch, rather than to stay where you are. So I think I can see, right in front of my eyes, a norm changing.

Fascinating stuff, I'm sure you will agree.

Haha!

Interesting Evening Standard diary piece.

Max Horkheimer quote

Quite like this-

[G]reat words, even the religious and national words, including freedom, lose their meaning. They function as elements of convention rather than of conscience. The more they become everyday currency, the less they are taken seriously. A while back I received a well-meaning pamphlet on educational reform, with the request that I go through it very carefully. On the first page the word freedom was used thirteen times. In my answer I said that if I should find the word honesty used thirteen times in a business advertisement, I would surely buy nothing from such a store.

Section 79 of RIPA

Just a reminder that under section 79 of the Regulation of Investigatory Powers Act directors can be held responsible for breaches, even if they were not aware of them (ie due to negligence). There has been speculation in the past that directors of News International could be caught by this, and that the police might be interested in pursuing this.

Presumably, though, the cops want to wait for the individual cases to go through, as they involve direct RIPA breaches (phone hacking!), before following up by exploring corporate charges. So next month's trials could have some bearing on this.

Also worth noting that when the Met were asked specifically about the issue of corporate charges, at the Leveson Inquiry, News Corp's co-operative stance was highlighted. See this Guardian story on the Section 79 problem for News Corp. the reason I mention this that in that recent Exaro scoop of the secret Rupert Murdoch meeting some of the things he says include that a) he regrets being so co-operative and b) the company has started being more difficult in dealings with the police.

Given that its very unlikely (now) for anyone to get hold of an email/recording of a current senior News Corp exec explicitly admitting that they knew what was going on, these sort of things take on more significance. And, of course, if people start pleading guilty next month the whole thing takes a new turn.

Stock up on popcorn.

A bit more on that audit consultation

Hmm....

ICGN

However, some of our members are concerned that these points could add to clutter without necessarily adding any meaningful disclosure. It could also result in standardised reporting on the process followed as opposed to more informed disclosures on how reliable the information is.

IMA

However, for boards to be required to state “the basis on which” they believe the annual report is so and provides users with information to assess the company’s performance, business model and strategy is likely to add clutter without necessarily enhancing transparency. Such disclosures could also become standardised on the process followed, as opposed to being informed disclosures on how reliable the information is, and certain of our members consider they would blur accountabilities and responsilbities between directors and auditors.

ICAEW

Disclosures regarding the basis of the board consideration may become boiler plate and add clutter to the annual report if companies provide a generic description of processes, without necessarily enhancing transparency.

ICGN

Though we stress, it is the full board that maintains the liability and accountability for ensure the integrity of financial reporting and for the annual report overall. Proposals for the committee to advise the board on the entire annual report could be seen as a delegation of power. It also places a further burden on the audit committee and does not take into account that some companies have committees that deal with particular aspects of the annual report such as risk committees

IMA

IMA considers it important that the audit committee does not undermine the role of the unitary board and its responsibility for the annual report overall. This proposal could be seen as a delegation of power. It also places a further burden on the audit committee and does not take account of the fact that some companies have committees that deal with particular aspects of the annual report such as risk committees.

ICAEW

The board already has full oversight responsibility for the accounts to give a true and fair view with or without the challenge from the audit committee. We wonder if this new requirement will be seen as placing an additional burden on audit committees and confuse the concept of the unitary board.

IMA

In summary, we consider the existing main and supporting principles under C.1 that: the board should present a fair, balanced and understandable assessment of the company's position and prospects in relevant reports, should be sufficient.

ICAEW

On that basis, we suggest that the existing main and supporting principles under C.1 should suffice: the board is responsible for presenting a fair, balanced and understandable assessment of the company's position and prospects in relevant reports.

IMA

We also support the enhanced communication over audit tenure, the period since the last tender, and the tender and selection processes. This information will be helpful for investors in assessing the frequency with which companies change their auditor.

ICAEW

Furthermore, we support enhanced communication over audit tenure, the period since the last tender, and tender and selection processes. The nature of this information is straightforward and should help meet the information needs of investors to assess the effectiveness of the external auditor.