News

PSS/CSS active on Audit Governance

The $10 billion strong Public Sector Superannuation Scheme and Commonwealth Superannuation Scheme (PSS and CSS) today confirmed they have lodged a submission in response to the Ramsay Report on Independence of Australian Company Auditors. This is believed to be the first public confirmation of an institutional investor taking such an active interest in this topical matter.

Announcing the submission, PSS and CSS CEO, Mr Steve Gibbs said: "There's been a lot of debate from companies and practitioners regarding the Ramsay Report - both before and after its release. We are pleased to confirm that as an investor, PSS/CSS is actively seeking dialogue on the issue of audit governance as this has the potential to impact the value of our investment portfolios".

"A lot has been said about the need for regulation - even prohibition - of certain audit services both locally and in the US. As an active investor we do not want unnecessary regulation of the companies in which we invest, however we are equally concerned as to the transparent management of the companies in which we are owners, on behalf of our members" Mr Gibbs said.

Key aspects of the PSS and CSS submission in response to the Ramsay Report included the findings of research into structures and processes that company boards have established to ensure the independence of audit, via an examination of Annual Reports across the S&P/ASX200 index. The findings showed that the average company paid its audit firm one and a half times the audit fee, for non audit services, while only one in five companies disclosed the nature of those non-audit services. The PSS and CSS have also expressed concern regarding the public reporting of executive involvement in company Board Audit Committees.

Mr Gibbs said "We don't pretend that this is an easy area, and our research and dialogue with companies has concluded that the audit/non-audit relationship is a grey area of investment risk. In this regard we share the concerns of some companies that dealing with audit risks may see the baby thrown out with the bathwater."

"On the other hand we have concluded that the risks arising from audit governance are in need of a healthy dose of transparency and disclosure. Those that say the risk is being managed cannot have it both ways; and we are looking to improved information from companies as to how they are managing this risk. As an active investor, this is not "nice to have", it's "required reading" for us" Mr Gibbs continued.

"We are encouraged by the 20 companies that referred to the independence of their audit in their most recent Annual Report, and that those companies make up almost 40% of the S&P/ASX200 index by company size. The corollary of this is that the majority of listed companies have a significant opportunity to improve the governance of their audit management practice. For example, 17 of the S&P/ASX200 companies do not have an Audit Committee. Of those that do, 25 have executives on the Committee, nine have their CFO on the Committee and two have their CFO as Chair of the Audit Committee" concluded Mr Gibbs.

The Boards of PSS and CSS have engaged Westpac Investment Management to discuss the issue of audit governance with their investee companies as part of the Boards' investment governance process.

For further details:
Mr Steve Gibbs
Chief Executive Officer
Public Sector Superannuation Scheme and Commonwealth Superannuation Scheme