Blog : BOARD TALK
|Posted on April 4, 2016 at 1:40 PM|
EY, the 'Big Four' professional services firm, has found that around a fifth of FTSE 350 companies are "woefully unprepared" for EU reforms on audit rotation set to take effect in June. Yep, in less than two months. Doziness, or worse - more ostriches in the boardroom ?
Its survey of 100 CFOs, tax directors and audit committee chairs found that 19% of respondents were unaware their company needed to tender or rotate its audit, and even when they were, almost half hadn’t translated this into a strategic plan. Some 28% of firms said they lacked full understanding of proposed restrictions on non-audit services, with a handful (7%) stating they had no knowledge of the changes at all.
EU reforms mean listed companies will have to tender every 10 years for audit contracts and rotate their auditor every 20 years. External auditors will also not be able to carry out certain non-audit services.
Clearly, reform is long overdue. But then some companies don't seem too bothered about how they come across on certain corporate governance issues. Schroders boss, Michael Dobson - who was already by far the best-paid CEO of any listed European asset manager in 2014 - had his pay hit £8.9m last year - and is now to step up to chairman.
Moving on. The survey quotes businesses as being worried about transition costs, disruption and potential changes to accounting judgements. More than half (57%) expect the transition costs to be 10-20% of their annual audit fee - and 21% think it could cost between 20-50% of their audit fee.
Obviously costs are of concern, but this reminds me of another piece I wrote for Forbes last year - Cost of Regulation 'Top Concern' For Financial Services. There is something wrong with priorities. And where does cost of legal fines fit in, when it comes to the list of concerns....?
While Hywel Ball, EY's managing partner of assurance said he welcomed the fact that more than half of FTSE 100 plcs have tendered their audit since the announcement of new regulations, he said: "we haven't seen the same level of preparation among the rest of the FTSE 350, with less than a quarter having tendered so far."
Is EY just pitching for business in the pages of the Financial Times ?
The FT itself reported recently that EY had made £2bn of annual revenues in the UK for the first time "as a shake up of the audit market helped it win more business" - and it is often first to press with these surveys from EY.
Some 61% of the FTSE 350 said their intention is to invite tenders from at least one firm that is not part of the 'Big Four.'
But in the last six months, there have been 25 audit tenders completed by FTSE 350 companies, and not a single one has been awarded to a firm outside the 'Big Four.' Time to draw your own conclusions.