Aberdeen to contest cosy auditing relationships

Aberdeen Asset Management has vowed to take action against companies that have had the same auditor in place for decades. The crackdown by Europe's largest listed fund house is the latest sign of rising investor intolerance of the cosy relationships that have developed between corporate clients and their accountants.

Paul Lee, head of corporate governance at Aberdeen, which oversees £324bn of assets, said the company plans to take "a more strident line on auditors" from this year when it comes to voting at company meetings.

He said: "Some auditors have been in place for 100 years. It is not unusual [for auditors to be in place for] 50 to 60 years. We will oppose the reappointment of the auditor at companies where they have been in place for a long time."

Aberdeen's stance could cause problems for large groups that have had the same auditors in place for decades. This includes Coca-Cola, the US beverages manufacturer, which has used Ernst & Young as its auditor for 94 years, and IBM, the US technology company, which has used PwC for at least two decades.

Investors are keen to push for more frequent auditor rotation to ensure accounting firms are truly independent from company management. UK investors are particularly alert to potential issues following the discovery of significant accounting irregularities at Tesco, the UK supermarket, last summer.

Natasha Landell-Mills, head of corporate governance at Sarasin & Partners, the UK fund house, said her company rejects auditor nominations when the firm has been in place for 15 years or more.

She said: "We have been massively failed by the lack of independence in Europe - just look at the financial crisis if you need any evidence at all that there were problems. There is real value in having a fresh pair of eyes [look over a company's books]. The longer [auditors] work for companies, the closer they get to executives."

Barclays, the UK bank that has used PwC as its auditor for more than 120 years, said last year it plans to put its audit out to tender in 2016.

This followed the introduction of European laws last year requiring companies to rotate auditors every 10 years or put the audit mandate out to tender after a decade. The rule change means incumbent auditors can remain with the same company for a maximum of 20 years.

The process of changing auditor is complicated by the fact that companies are not allowed to select replacement firms that already provide a high level of non-audit services.

Mr Lee said he wanted more clarity on timetables for audit tender from companies' audit committees, which determine whether to extend an accounting contract or not.

He said: "Audit committees need to own that as an issue and give active consideration to when they intend to tender - it is not always straightforward. We are looking to see that audit committees have grasped the mettle on that.

"The better companies have already laid out their timetable and taken an incredibly pragmatic and rational approach. The ones that are less good say they are aware there are rules pending on this and will keep [their auditor arrangements] under review. That does not give you confidence."

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