European Pension Execs Call for Audit Reforms

March 28, 2002 ( - Support is building throughout Europe among pension fund managers and insurance companies to reform the current auditor system in the wake of the Enron scandal by adding more stringent controls.

According to the Wall Street Journal, the pension heads and insurance companies want to make sure auditors’ perspectives aren’t poisoned by being too close to their audit clients.

According to the Journal, pension funds want:

  • disclosure of business relationships beyond auditing.
  • more quickly rotating audit companies or a firm’s audit partners.
  • hiring a different auditor if the client hires an audit firm partner.
  • requiring company audit committees to oversee outside auditors more carefully.

“Independence of auditors is fundamental,” Peter Butler, director of Hermes Focus Asset Management in London, told the Journal. “We don’t think audit firms should be barred from giving other advice, but want it disclosed.”

Elsewhere in Europe, shareholders are also worried about the objectivity of auditors.

Thomas Meier, a European fund manager with Union Investment in Frankfurt, says that Germany, like the rest of the world, is limited to picking from only a handful of big accounting firms that can handle global companies.

Auditor Rotations

Another topic under hot debate in the UK is how often a company should hire a new auditor.

Britain’s Association of British Insurers last week called for more stringent auditing controls and suggested a more frequent rotation of audit partners within a firm.

The ABI claimed that forcing rotation of auditor firms would weaken scrutiny during the transition from one audit firm to another. Instead, the association recommended rotating audit partners more frequently than the current norm of every seven years.

There is also a debate about how much time should pass before an auditor is allowed to work in-house for a former client.

The ABI recommends that when an audit partner is appointed to a position with a client, such as finance director, a new auditor should be hired.