| LONDON, June 14
LONDON, June 14 Company audits were a boiler
plate utility and failed to challenge "racy" judgements made by
management, top shareholders told a competition probe into
Britain's audit market.
The Competition Commission published on Thursday a digest of
what shareholders told its inquiry at a private hearing in
"Auditors had lost the ability to resist unrealistic and
racy judgements taken by directors," the digest said. "Instead
competition was now partly on the basis of reputation for sector
expertise and partly on the provision of other services."
The views echo those of the sector's policeman, the
Financial Reporting Council, which said in its annual report
this week auditors were not sceptical enough.
Policymakers have shone a spotlight on the sector after
banks that were given a clean bill of health then had to be
rescued by taxpayers during the 2007-09 financial crisis.
The shareholders were represented by the Association of
British Insurers, the Investment Management Association and the
National Association of Pension Funds, which combined account
for close to 5 trillion pounds ($7.8 trillion) of investments.
They said the audit report had only "minimum perceived
value" because it was "quite boiler plate" and "uninformative".
"Auditors rarely provided an emphasis of matter paragraph in
the audit report because it was perceived as giving a negative
signal," the digest quoted shareholders as saying.
The Commission is considering if "remedies" are needed in a
UK market dominated by the Big Four - KPMG, Ernst & Young,
Deloitte and PricewaterhouseCoopers.
The European Union is approving a law that would shake up
the sector by introducing rotation or mandatory switching of
auditors every set number of years.
The shareholders backed rotation every five years, saying
they had little contact with auditors or were consulted on when
an auditor was changed.
They were concerned by the lack of competition and switching
in the market, especially in the financial sector.
"The representatives did not consider that there was a
difference in audit quality between the Big 4 firms and the
others," the shareholders' digest said.
They asked for "checks and balances" on Roger Davis, a
former PwC partner now advising the Competition Commission,
which replied that the sole decision makers for the probe would
be its five group members.