Dialogue with institutional investors about audit policy

January 2014

On 21 November 2013, several members of the European Audit Committee Leadership Network (EACLN) met with Jeannette Andrews, senior analyst at Universities Superannuation Scheme (USS) Investment Management, and Deborah Gilshan, corporate governance counsel at RPMI Railpen Investments. USS and Railpen are two of the largest pension funds in the United Kingdom and have been at the forefront of investor initiatives on audit policy in the European Union. The meeting was part of an ongoing dialogue between stakeholders and EACLN members about audit-related issues in Europe.  

This document summarizes the key themes emerging from the meeting, including the points that investors and members raised, and additional background information and perspectives that guests, members and other experts shared in conversations before and after meetings.   

Investors and audit chairs viewed their discussion as a fruitful exchange that should continue in additional meetings.  In this first meeting, two major themes emerged:

  • Investors are focusing more on audit
    Investors have started taking a greater interest in audit policy and practices.  In the fall of 2012, a number of institutional investors drafted a position paper that proposes a maximum tenure of 15 years for audit firms, a cap on fees for non-audit services of 50% of the value of the audit, and more disclosure in the audit report, among other reforms.  EACLN members welcomed the growing investor interest in audit, but they reiterated their skepticism about mandatory reforms, arguing for flexibility and judgment exercised by the audit committee and the board.  

  • Investors want more transparency from audit committees
    Investors want a better understanding of audit committee activities.  They want direct engagement with audit committees, and they want companies to be more willing to respond to investors’ requests for dialogue.  EACLN members were surprised at how little investors know about the work of the audit committee, and they recognized the need for more engagement.  They also acknowledged investors’ requests for more informative audit committee reports, though they expressed concerns about excessive disclosures.