22 February 2013

IMA calls for mandatory tendering requirement for audit firms

Liz Murrall, Director of Corporate Governance and Reporting at the Investment Management Association, responded to the Competition Commission's provisional findings on the audit market inquiry.

“Investors believe the long term that auditors hold office can impact their independence and objectivity and is something that needs to be addressed.  But our preference is a mandatory tendering requirement along the lines proposed by the Financial Reporting Council.

“The majority of investors consider a requirement to rotate an auditor after an arbitrary period of time ‘mandatory rotation’ is undesirable.  Such a requirement could mean that companies are forced to change auditor at a time when the existing auditor’s familiarity with the business would benefit the audit such as when there is a major acquisition or merger.  It could also conceal the fact that an auditor has stood down for a particular reason and prevent an auditor being reappointed when they are the preferred choice of both management and investors.  

“It should be for a company, possibly through its audit committee of non-executives, to decide the best time to change auditor in conjunction with its shareholders/investors.  A mandatory rotation requirement disenfranchises both.”

Press release

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