Auditors: EAC Report

Lord Geddes Excerpts

Wednesday 14th March 2012 Grand Committee

[The Deputy Chairman of Committees (Lord Geddes)]

It is now 5.35 pm. The noble Lord, Lord Hodgson of Astley Abbotts, who was so abruptly cut off in mid-flow, may resume his speech.

[Lord Hodgson of Astley Abbotts]

I was winding up, talking about the value of the traditional statutory audit and whether it now needs some serious revision. I said that my company is a simple company, with market capitalisation of £660 million, all in the UK, no foreign exchange, none of those complications, no open final salary pension scheme and, apart from some hedging for our long-term debt, not a great deal of complexity. I pointed out that in 15 years our annual report has gone from 35 pages to 104 pages. I questioned whether that is a useful exercise and how many people read it. In the Companies Act 2006, we thought we were being extremely clever in introducing the e-mail opportunity for companies. In a strange way, that has taken the pressure off auditors to think about the thing because they can e-mail people. Many fewer copies of the report can be printed. Increasingly the default option is to send it by e-mail anyway, so some of the self-restraint has been removed.

I think the auditing profession needs to follow this report with some serious intellectual heavy lifting to provide a greater degree of focus going forward. I turn to another context: the City at the moment. Noble Lords will have received papers from banks recommending shares. On the back page there is half a page of tiny type containing disclaimers. An investment bank put halfway down that, “If you have read this far, call this number and we will send you a bottle of champagne”. In three months, it never had a call. That is how much all this stuff is being read. It has become boiler plate. Similarly, too much of annual reports has become box-ticking and verbiage read by almost nobody. I think the profession could do a really valuable service by introducing a degree of rigour and focus. I hope that above the desk of each of the members of that working party, there will be a banner reading: “Less is More”.