On October 18, 2018 Institutional Shareholder Services Inc (ISS) launched a consultation on aspects of their benchmark voting policy for the UK, Ireland and Europe.
In light of increased scrutiny of the role and performance of auditors, and signs of investors’ willingness to hold auditors directly accountable for perceived failures in audit quality, ISS is proposing to track significant audit quality issues, with a focus on accounting controversies, at the lead engagement partner level, wherever such information is available for UK, Irish and European companies.
ISS research reports will note any lead audit partners (and/or partnership firms) who have been linked with significant auditing controversies and, where they are engaged in the audit for other public companies, this will be raised for investor attention even if no audit concerns have been identified at the subject company. A negative recommendation on auditor ratification may be applied in the most severe cases, for example, where the lead audit partner has previously been linked with a corporate failure scenario or other material destruction of shareholder value arising from fraud or other accounting issues.
ISS specifically seeks feedback from investors on the following:
Would they consider the lead audit partner’s involvement in a significant accounting controversy, even if this occurred at another company, to be a potential area of concern?
Would they support ISS adopting in future a similar approach in other markets (outside the UK and Europe) where disclosure of the lead engagement partner is available?
Comments are requested by November 1, 2018. These will be taken into consideration when ISS finalises its benchmark voting policies to be applied for shareholder meetings taking place on or after February 1, 2019.
(ISS Consultation: Auditor Ratification (UK/Ireland and Europe) – 18.10.18)