Letter from Mr Peter Williams, The Hundred
Group of Finance Directors (ADT 37)
1. We are pleased to submit our comments
on the Committee's call for evidence.
2. The Hundred Group is a non-political,
not-for-profit organisation which represents the finance directors
of the UK's largest companies, with membership drawn mainly, but
not entirely, from the constituents of the FTSE100 Index. Our
aim is to contribute positively to the development of UK and International
policy and practice on matters that affect our businesses, including
taxation, financial reporting, corporate governance and capital
market regulation. Whilst this letter expresses the view of The
Hundred Group of Finance Directors as a whole, they are not necessarily
those of our individual members or their respective employers.
3. We welcome the House of Lord's consultation
and the opportunity to respond on these issues.
4. Due to the nature of the consultation
we have not sought to answer the questions raised by the Committee.
As preparers of financial statements we recognise that the ownership
of the audit relationship must be between shareholders and auditors.
We do not seek to comment on the requirements of shareholders,
nor would it be appropriate for us to guide the regulatory requirements
in this arena. However, we express in this letter our thoughts
as management in so much as they may be relevant to the Committee's
5. In overview, we are supportive of the
current role of the auditors and the value brought to our shareholders
through the audit report and through other services rendered to
our members. We note the common practice of investors to utilise
the audited financial statements as a reference point throughout
the financial cycle, the value of which is enhanced by the associated
6. We are of the opinion that the services
rendered by the "Big 4" are of a high quality and that
there exists sufficient competition in the market place to drive
continuous improvement and breadth of choice to our shareholders.
In particular we note the high level of competition demonstrated
during an audit tender process. In our experience this process
brings out a high degree of competition in terms of emphasis of
approach and on audit fees paid.
7. We appreciate and recognise the value
that we, as management, benefit from the ability to use our auditors
to undertake non audit services where appropriate. We strongly
believe that we must retain the ability to select service providers
based on the highest standard of deliverable, including circumstances
where the service provider is our auditor. We make this statement
whilst recognising the importance of independence between management
and auditors and the need to ensure at all times that this is
not breached through appropriate safeguards.
8. We do not feel that the Audit market
is unduly concentrated. Indeed, we see that in some arenas there
is a "Big 6" of accountancy firms providing increased
competition. For our members, however, the importance of "global
reach" in an audit firm is imperative. The majority of our
member organisations are global in reach and, with trade barriers
opening up and market growth projections persistently dominated
by developing markets we see huge growth possibilities outside
the European Union.
9. Our service providers, including our
auditors, are expected to be able to rise to the challenge of
auditing our complex, global businesses. The barriers to entry
for a global audit firm are high and require a certain "critical
mass" to be effective. Current requirements under ISA600:
Special ConsiderationsAudits of Group Financial Statements
(including the Work of Component Auditors require significant
input from group auditors which is practically translated as a
requirement for group auditors to audit the majority of a group's
global subsidiaries. This in turn will preclude smaller firms
from competing in the global arena. Therefore our membership will
almost exclusively seek an audit from one of the "Big 4"
auditors. The establishment of global networks necessarily takes
time and the assembly of a critical mass which we feel would be
inappropriate to force.
10. In addition larger auditing firms will,
by their nature, have a broader base of experience to draw from
when conducting their audits. Our membership represents companies
that are fully listed, are acquisitive, raise debt, purchase intellectual
property, have complex tax structures and run international treasury
functions. These activities require advisors who have a broad
background of experience to service us appropriately. In our experience
the Big 4 are consistently and comfortably able to deliver the
expertise we demand of our auditors and accordingly our members
and their shareholders predominantly look to the Big 4 when considering
11. We understand the basis for questioning
the role of the auditor and the reporting requirements of the
auditors to external bodies where appropriate. However, we would
caution against any developments which will, either directly or
indirectly, affect the relationship between the auditors and the
audit committee. The frank, open and challenging relationship
which is demonstrated in our audit committees is one which both
management and non-executives value and is, in our view, effective
at challenging management and the audit committee appropriately.
27 September 2010