Shareholder advocate aims to drive Icanz 'pimp' off streets

By Deborah Hill Cone

Friday 16th July 2004

Shareholder advocate Bruce Sheppard is standing for the Institute of Chartered Accountants' governing body as he launches a new post-Enron type campaign to pressure accountants not to do both audits and consulting work.

Auditors must get off the consulting gravy train, Sheppard said, putting the crusade in his characteristically colourful language although, perhaps fortunately, the flamboyant activist didn't dress the part this time.

"We're going to get 'the pimp' off the streets. Icanz is the pimp because it represents the hookers, who are the big four [accountancy firms]."

Sheppard, whose scrutiny is usually focused on the Stock Exchange and listed companies, now has Icanz in his sights because he says the accountancy body is too beholden to the major firms and needs to be reformed.

"We need to instill in the accounting profession a sense of pride in what it means to be an independent auditor in both appearance and fact. If investors cannot believe the numbers there will no confidence to invest," said Sheppard, a chartered accountant with his own firm, Gilligan Sheppard.

At the Shareholders' Association annual meeting this week he revealed he was starting a multi-pronged campaign to challenge listed companies that used a single accountancy firm for both audit and consulting work.

The association had a victory on this score with the country's largest listed company, Telecom, which has separated its audit and consulting work between KPMG and PricewaterhouseCoopers.

It awarded Telecom chairman Roderick Deane its inaugural "lighthouse" award for good corporate governance to recognise the company's capitulation on the issue.

Association members were to be encouraged to write to Icanz laying a formal complaint for breach of ethics where a listed company's accounts were audited by the same firm that acted as a consultant to the company.

The association would post draft letters on its website to make it easy for members to make numerous complaints.

Under the Institute of Chartered Accountants Act, Icanz has a duty to investigate and reply to every complaint, unless it is frivolous or vexatious, which could be time-consuming and expensive if Sheppard's campaign takes off.

Sheppard said he did not expect Icanz to uphold any of the complaints but this would put pressure on them to address the issue.

"Membership subs [for Icanz] might go up. They might have to put 100 people on the road to discharge their duties."

The association also believes accountancy firms that audit a listed company ought not to act for any directors, major shareholders or major office bearers of that company.

Another part of the campaign would involve trying to broaden the pool of potential audit firms for listed companies to use. "There is a selection of second-tier firms we believe are capable."

Potential second-tier firms that may be endorsed included Grant Thornton, Staples Rodway, BDO Spicers, BDO Hogg Young Cathie and Horwath Porter Wigglesworth.

The association would endorse certain firms for listed company audits after a due diligence committee had analysed them, Sheppard said.

It was possible some second-tier firms could put in joint venture bids to tackle major auditing projects.

"For the first time auditors are going to face elections. I doubt we will get many but you never know."

Sky City and The Warehouse had backed down over using a single firm as both external and internal auditors after the association raised the issue.

Sheppard said his own data showed that six years ago for every every dollar spent by listed companies on audit $6 was spent on consulting.

But the most recent figures showed for every dollar spent on auditing today only 87c was spent on consulting.

He hoped this trend would continue.

The figures were collated from a database of 60 public companies, Sheppard said.

Nominations for five vacancies on the Icanz council closed last Friday and voting, which is by post and electronic, starts on July 27.

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