Last year, Accountancy's ground-breaking survey revealed that a significant number of finance directors in the FTSE 100 had previously worked for the firm that is now their company's auditor.
The survey found 14 'matches' between the alumni firm of 59 FDs surveyed and the company's auditor. This number increased to 18 when CEOs and executive chairmen were taken into account.
In the year since there have been a number of changes to the constituents of the FTSE 100, and some movement in their senior directors. So have things changed?
The answer, most emphatically, is no. This year's survey shows that 18 FTSE 100 companies are now audited by an alumni firm of their finance director, CEO or executive chairman - exactly the same as last year.
Whether or not there is a risk that accountants working in senior management are favouring their alumni firms as auditors is open to debate. In theory at least, corporate governance procedures should safeguard against that danger. It is now de rigueur for the auditors to be appointed with the help of an audit committee, and indeed in the post-Enron world the influence and importance of the audit committee has increased, which might indicate that the influence of directors over such appointments has declined. And, given the scrutiny they have been under, one assumes that auditors will be more careful about giving the benefit of the doubt to a director who is a former colleague than they might have been in the past. However, it is always difficult to make such assumptions given that so much is down to personalities and personal contacts.
Then there is the issue of public perception. The ICAEW's 'cooling off' rule, introduced last year, which prevents an audit partner moving directly to a former client, was the direct result of the Enron collapse and was intended to improve public confidence in the auditing profession. It is still, however, not unusual for senior audit staff to take up positions with a client.
A cosy world
The fact remains, though, that all of the FTSE 100 are audited by the Big Four, and those same four firms carry out the bulk of the professional training of chartered accountants. Coincidence alone, then, will result in a large number of matches, and considering that no chartered accountants will be trained by Andersen in the future, the following generation of finance directors will be naturally drawn from an even smaller pool of firms.
Auditors and audit committees will therefore increasingly have to be on their guard against the resulting risks of conflict of interest. More company directors are likely to have an intimate knowledge of how their audit firm works, have friends and contacts at the firm and a working knowledge of its audit processes. All of which means that, should they ever stoop to such levels, they will find it easier to hoodwink their auditor.
MAIN SURVEY FINDINGS
• 18 of the FTSE 100 companies are audited by the old firm of an executive director, most often the finance director
• Deloitte has pipped PwC to the post as the firm with the most chartered accountant old boys in the FTSE 100.