Thursday 25 October 2018 5:59 pm

Audit re-appointments waved through by shareholders despite year of failures in sector


Shareholders overwhelmingly vote to back the re-appointment of company auditors despite widespread controversies in the sector, new research shows.

Analysis of annual general meeting votes in 2018 by outsourcing firm Equiniti has found that the average votes in favour of re-appointing an auditor ranged from 97.6 per cent to 99.5 per cent across the FTSE 100, 250 and all-share.

This comes despite the controversy surrounding the collapse of outsourcer Carillion and department store chain BHS, which both went to the wall following fully signed-off audits.

In the wake of the scandals politicians have called for increased competition in the sector, with MPs such as work and pensions select committee Frank Field arguing for the breakup of the Big Four audit firms.

Natasha Landell-Mills, head of stewardship at investment manager Sarasin & Partners said the research showed that performance of audit firms has tended to fly under the radar.

“The key problem is simply a lack of focus. It (audit) has sadly been treated as a rubber stamping exercise, with little scrutiny of basic red flags, be they aggressive accounting practices, to excessively long tenure of audit firms or high levels of non-audit work for the audit clients, which creates material conflicts of interests,” she said.

The leader of Labour’s review of the accounting sector, Prem Sikka of the University of Sheffield, said shareholders “don’t really get information in one place saying what kind of regulatory actions the auditor has faced in past years”.

If such information was easily available, then “maybe Carillion would have made better judgements,” he added.

Atul Shah of the University of Suffolk said shareholders tend to be focused on maximising short term returns.

“Shareholders have little interest in the running of the company – their interest is in maximisation of share price. Research shows that they are short-termist in their outlook,” he said.

A spokesperson for accountancy regulator the financial reporting council said: “The FRC isn’t going to speculate on shareholder actions.”