The Institutional Shareholder Services (ISS) has stated that recent high-profile corporate failures and accounting scandals have raised investors' concerns about the efficacy of financial statements and the need for improved audit quality and stronger boardroom oversight.
Against this backdrop, ISS has published its 2019 benchmark policy consultation, seeking views on certain of its proposed voting policies for 2019. In relation to its UK/Ireland and European policies, the key changes under consideration are as follows:
"Where information is available, 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, e.g. 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 is raising 2 specific questions of investors:
Would your organisation 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 your organisation support ISS adopting in future a similar approach in other markets (outside the U.K. and Europe) where disclosure of the lead engagement partner is available?
The policy comment period closes on 1 November 2018. ISS expects to announce its final 2019 benchmark policy changes during the middle of November with the updated policies applying to shareholder meetings taking place on or after 1 February 2019.
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