UK Companies Flouting the Rules on Audit Independence

Financial News, March 18, 2002 | Go to article overview

UK Companies Flouting the Rules on Audit Independence


Leading UK companies including BHP Billiton, the mining group, and Associated British Foods continue to flout best practice standards on the independence of board audit committees.

In the wake of Enron, investors are keen to ensure that overly close relationships do not develop between audit firms and client companies. In particular, they insist that boardroom audit committees are made up solely of independent directors - that is, non-executive directors with no other commercial relationship to the company that might compromise their judgment.

Such a standard is enshrined in the Combined Code on corporate governance, with which UK listed companies are expected to comply. The government recently announced a review of audit regulation in the wake of the Enron collapse, which is likely to lead to a tightening of standards.

However, several UK companies have audit committees that include former employees of the auditor. In two cases - at BHP Billiton and at IG Group, the spread betting firm - such connected directors chair the audit committee. In all cases, the companies deem the director concerned to be independent.

For example, Martin Adamson was involved in the audit of Associated British Foods' accounts while a board member of KPMG. He later joined the company as a non-executive director, currently sits on the audit committee and is deemed an independent director by the company.

Geoff Lancaster, an Associated British Foods spokesman, pointed out that several years have passed since Adamson worked for KPMG. He says: "We don't think it's an issue. His prior knowledge of the company is valuable for us. There's no conflict of interest."

At BHP Billiton, the audit committee is chaired by David Crawford, who used to be Australian national chairman of KPMG, the company's auditors.

PIRC, the shareholder voting advice group, says it has "serious concerns about the potential for conflicts of interest". BHP Billiton points out that Crawford worked for BHP in Australia, which was audited by Andersen. Following the merger with Billiton, and the appointment of KPMG as auditors of the combined group, he resigned his position at KPMG.

Even if former audit firm employees don't serve on the audit committee, investor representatives have concerns about independence.

The Voting Issues Service of the National Association of Pension Funds, which advises client funds how to vote their shares, says any director with a connection to the audit firm will be regarded as non-independent unless the company makes a convincing case to the contrary.

Francis Plowden, a non-executive director at ITNET, the IT applications business, joined the company shortly after retiring from the company's auditors, PricewaterhouseCoopers. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • A full archive of books and articles related to this one
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

UK Companies Flouting the Rules on Audit Independence
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

    Already a member? Log in now.