STANDARD Life Investments’ corporate governance chief Guy Jubb has told auditors that “Doris in Dorking” must be able to understand their reports as accountants seek to regain investor faith following the banking crisis.
Reforms proposed by the Financial Reporting Council (FRC) could see auditors explain at more length in company accounts the issues they encountered when examining a firm’s finances.
The move comes after controversy over auditors’ decisions to sign off Royal Bank of Scotland and Halifax Bank of Scotland as going concerns months before they had to be bailed out by the taxpayer in 2008.
Mr Jubb told an FRC conference in London that the new reports must be as comprehensible to investors as to the Edinburgh-based funds giant that employs him.
He said: "It is not just Standard Life, it is Doris in Dorking as well."
Hitherto investors had been "shrinking violets" when tackling companies on auditing issues, he said.
He added: "We are in an environment where there is huge pressure on investors to engage effectively with the companies we invest in."
Audit issues, he added, "are starting to move up the totem pole" and increased disclosure will provide "hooks" for discussions between shareholders and company management.
He said: "Audit reports in 10 years time should be a jolly good read."
Liz Murrall, director for corporate governance and reporting at fund management trade body the Investment Management Association said trust in company reporting "has in part been lost".
She insisted that the costs of the new regime would be marginal" but warned auditors they should not use "boilerplate" reports, replicating similar wording in each opinion they issue.
Paul Lee, a director at investor adviser Hermes Equity Ownership Services, said few audit committee chairmen were willing to engage with shareholders.
He added: "Hopefully that will change."
Nick Land, the former chairman of accountant Ernst & Young who serves on the boards of telecoms company Vodafone and high street chemist Alliance Boots, said: "It seems strange that a reader of an annual report has no real idea what the auditor is doing when coming to an opinion." Mr Land, who chairs the FRC's audit and assurance council which proposed the reforms, told the conference at the Royal College of Surgeons of England they might "close the gap" between the information investors expect and that provided by auditors and audit committees.
The proposed changes come at a time when the Competition Commission is considering forcing companies to change auditors periodically to protect their independence.
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