Non-audit fees to FTSE 350 auditors down by a quarter

Fees paid by of FTSE 350 companies to their auditors for non-audit services are down by a quarter, according to research by Grant Thornton (GT).

GT's annual Corporate Governance Review shows that payments for non-audit services have fallen by 24%, from 68% of audit fees in 2012, to 51.7% currently. The trend is particularly marked among FTSE 100 companies, where non-audit fees on average now represent 33.7% of the external audit fee, representing a 43% drop on 2012's figure of 59.2%.

Simon Lowe, chairman of the Grant Thornton Corporate Governance Institute, said the fall in non-audit fees was likely to be a reflection of the current high profile media commentary around better auditor independence; coupled with the lacklustre economy and reduced M&A activity.

'Our research shows that the ratio of non-audit to audit fees grows as you move down the FTSE 350, reflecting the decreasing levels of scrutiny these businesses come under. Investors need a change in the law to ensure this fall isn't temporary and that auditor independence doesn't fall off the agenda when the most recent crisis is forgotten and deal activity spend picks up,' Lowe said.

The research also found that the chairmen of company committees and the group are taking greater personal accountability for standards of governance, with personal introductions to governance statements rising markedly. This was particularly evident among nomination committees, which posted an 83% rise.

However, the survey suggests companies provide shareholders with limited information on risk management and internal control, with only 27% of the FTSE 350 providing real insight into how they review the effectiveness of their systems. Additionally, 84% do not demonstrate an integrated reporting approach, failing to demonstrate the link between discussion of their business model, future plans, strategy and key risks.

Lowe said: 'There remains a lot of room for improvement. Clearly, many businesses are still struggling to articulate the relationship between their business model, strategy and risk management frameworks. We warmly welcome BIS's Strategic Report Regulations. For too long companies have been able to hide behind current guidance and state only that they have reviewed control effectiveness while giving no real insight into their risk management and control practices.'

The annual Corporate Governance Review is in its 12th year and covers the annual reports of 298 UK FTSE 350 companies, with years ending between June 2012 and April 2013, excluding investment trusts.

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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