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At present, it is the CFO, and his or her fellow executives, who are getting the red carpet treatment from audit firms, according to Laura Carstensen, who chaired the Competition Commission’s investigation into the auditing of large companies. “Shareholders play very little role in appointing auditors compared to executive management ... audit firms naturally focus more on meeting management interests”, she said.
The changes suggested by the competition watchdog in Friday’s provisional report include giving investors the power to vote on putting an audit contract out to tender. In addition, lead audit partners could be asked to address shareholders at a company’s annual general meeting – something that could strike terror into some members of the often-introverted profession. Companies may also be required to make the chairmen of their audit committees – the groups of directors that oversee the auditor relationship at a company – conduct question and answer sessions with investors.
These novel proposals address lingering dissatisfaction with the way the audit profession failed to warn investors of bank failures during the financial crisis. How much of the Competition Commission’s blueprint comes into force will depend on its ability to withstand a lobbying backlash from the Big Four ahead of its final report in October.
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