APPENDIX 6: LETTER FROM THE RT HON LORD
TEBBIT CH (ADT 77)
In response to the Call for Evidence in the
matter of Auditors: Market concentration and their role,
I would like to submit these few probably unoriginal thoughts.
I would say, however, that they date back to my experience
as a non-executive director and member of audit committees in
the 1990s and early 2000s in Sears Group, British Telecom and
BET.
At that time I became concerned that in all three
companies the audit fees were becoming a smaller amount than the
fees from consultancy work, much of which was won because the
auditors' knowledge of the company enabled them to make better
informed proposals for such work at lower prices than other would-be
contractors.
That caused me to become of the opinion that the
auditors were increasingly concerned not to irritate executive
directors by making criticisms of accounting practices lest they
might lose not only the audit contract, but the far more lucrative
consultancy work.
My conclusion is that the answer to your Question
6 is self-obviously "No—auditors were not sufficiently
sceptical in bank audits". However, I do not think lack
of competition was the cause—rather was it fear of losing
consultancy income? On Question 10, I think it might be prudent
to limit consultancy income in relation to audit income of a client
company.
6 January 2011
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