CalPERS Ponders Outside Auditor Policy Shift

March 14, 2005 ( - The California Public Employees' Retirement System (CalPERS) is expected on Monday to reconsider its approach to outside auditors at companies in which it invests.

A Wall Street Journal report said the CalPERS board will consider a new approach to the issue that targets audit firms but relieves corporate directors of the responsibility. Under a staff recommendation, CalPERS still would scrutinize the services provided by accounting firms to audit clients that could, in its view, potentially undermine independence. But “instead of placing the focus on individual directors, they are focusing on the auditor doing the nonaudit work,” a CalPERS spokesman told the Journal.

During the 2004 proxy season, the $196 billion-CalPERS also frequently withheld votes for auditor ratifications. This year, deciding which audit firms to target, the board will consider following a proposal outlined by the Public Company Accounting Oversight Board that would bar only those tax services seen as most likely to undermine auditor independence.

Under the auditing profession’s oversight body’s proposal, firms would be disqualified from auditing publicly held companies to which they have sold aggressive tax-avoidance plans, according to the report.

Auditors won’t be allowed to sell tax services at all to top executives of companies they are auditing. Accounting firms also would be banned from entering into “contingent-fee” arrangements with audit clients, under which the clients are charged a percentage of the money they save as a result of their auditors’ tax advice.