BRITAIN'S CITY watchdog, the Financial Services Authority, is considering making mandatory rotation of auditors part of the Stock Exchange listing requirements under a wide-ranging review of the rules already under way.
Speaking at the World Economic Forum annual meeting in New York, Sir Howard Davies, the chairman of the FSA, said that following the Enron collapse, which has called the independence of auditors into question, the review would also look at whether to limit the amount of non-audit work accountants are able to do for their audit clients.
The move came as the consumer products giant Unilever said it was reviewing the practice of using its auditors to carry out consultancy work and Walt Disney said it was separating the two functions entirely. Unilever's auditors are PriceWaterhouseCoopers. Niall FitzGerald, Unilever's executive chairman, said the Enron collapse has raised "serious questions" over the role of auditors. Concern has been voiced over the danger that auditors may be less rigorous about questioning a company's accounts when the client is also offering much more lucrative consultancy work.
Mandatory rotation of auditors has been widely touted as a possible solution to the problem of safeguarding audit independence, but Britain could be the first to introduce such a measure, since it would be relatively simple to make it part of the listing rules.
Sir Howard admitted that limiting non audit work would be more contentious, but he had harsh words for the big accounting practices generally. He dismissed the arguments made by the big five for consolidation of the industry as "completely spurious", saying there had already been far too much of it.
"If we can get a consensus on limiting non audit work, then we will make the change", Sir Howard said. …