Sacramento, Calif. (Sept. 17, 2003) -- The country’s largest pension plan, the California Public Employees Retirement System, is maintaining its protest against companies employing outside auditors for other lucrative services even when such arrangements comply with recently tightened regulatory standards.
The decision is the result of a late Monday vote on the issue.
“Staff recommends that the committee give staff direction to withhold our vote for all audit committee members in cases where the company utilizes the external auditor for non-audit services into and throughout the 2004 proxy voting season,” according to a Calpers statement. “Staff will also continue to seek support from other investors and through the council of institutional investors regarding audit independence.”
In addition, the Calpers board said advocacy efforts are expected to have “minimal cost impact” and would likely be spread over a long period of time. These costs could include staff resources to continue research and implementation of these efforts, travel in connection with advocacy efforts, and the use of external consulting support.
For the better part of this year, Calpers has argued that standards put in place by the Securities and Exchange Commission to ensure the independence of corporate auditors leave too many loopholes.
During the 2003 proxy season, Calpers sent letters to 1,776 companies in its portfolio setting out its argument that the recently tightened rules on audits did not far enough, according to a meeting notice posted on the Calpers Web site.
In January, the SEC adopted new rules barring audit companies from performing certain non-audit services -- such as providing investment advice or investment banking activities -- in an effort to assure the independence of auditors.
Although auditors are generally barred from working on financial information systems design, for example, the SEC said they may do so in cases where the system is unrelated to the client's financial statements or accounting records.
The $137 billion fund also conducted its own analysis, which showed that external audit firms working for 1,000 companies it examined drew nearly half of their revenue from services outside auditing, such as consulting.
Calpers is an active watchdog in corporate governance and reform, and the actions it takes are scrutinized throughout the investment world.
-- WebCPA staff
