A FTSE250 Group Company Secretary writes...
We are preparing to put our audit out to tender. FRC guidance indicates that “Companies should communicate with investors before the formal process commences and seek investor views to inform their choice of participating firms.”
We will be writing to our major shareholders, but have companies used any other methods of shareholder engagement, and at what level?
We’re doing an audit tender process in the year ahead so we are in the planning stage for the project. Our approach to the FRC’s guidance on this point is that it is frankly a bit over the top. The FRC present things on the basis somehow that the auditors act on behalf of the investors in a company. I know what they are trying to say, but this is wrong, and it’s the company (Board) who choose and appoint the auditors and the shareholders get their annual vote at the AGM on the topic. the company is in charge not the investors. So in terms of engagement with investors, we’ll tell them (in the next report and accounts) what we are doing; and as part of routine IR activity we’ll raise the topic with our major shareholders and see if they have any comments. We expect the investors to believe that the Board is competent enough to appoint suitable auditors.
As part of the full year results investor roadshow, the audit tender was mentioned to institutional investors. Our PR agency collate feedback from these sessions and one of the questions asked was to gauge any opinion on the audit tender/ particular firms/ appointing firms outside the top 4. We received one liners from most shareholders which did help shape our shortlist of firms.
We re-tendered last year and didn’t engage with shareholders beyond setting out our intentions and process in the Annual Report 2 years ago followed by the outcome last year. Our new auditors take over at the conclusion of this financial year. Major investors have had the opportunity to raise any concerns with Directors and the Chairman at several and separate meetings but none have shown any interest. We made sure we included Tier 2 audit firms in the tender process.
Very much aware of the FRC and IA guidance on this matter but we haven’t engaged with shareholders beyond normal communication via the annual report and stock exchange announcement.
We spoke to major investors as part of the normal IR process 12 months in advance of the RFP. None were particularly interested and were comfortable relying on the Audit Committee’s process and judgement, so we didn’t seek further views. Other than that we described the timing/process in the Annual Report.