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Non-audit fees paid to auditors falls by more than a quarter

The 12th annual Grant Thornton Corporate Governance Review reveals that fees paid to the auditors of FTSE 350 companies for non-audit services, has fallen by 24%, from 68% of audit fees in 2012, to 51.7%.

The trend is particularly marked among FTSE 100 companies, where non-audit fees on average now represent 33.7% (2012: 59.2%) of the external audit fee, representing a 43% drop.

Commenting on the review, Simon Lowe, Chairman of the Grant Thornton Corporate Governance Institute, said: "This reduction of non-audit fees must not lead to complacency amongst the stakeholder community and is likely to be a reflection of the current high profile media commentary around better auditor independence; coupled with the lacklustre economy and reduced M&A activity. Our research shows that the ratio of non-audit to audit fees grows as you move down the FTSE 350, reflecting the decreasing levels of scrutiny these businesses come under. Investors need a change in the law to ensure this fall isn't temporary and that auditor independence doesn't fall off the agenda when the most recent crisis is forgotten and deal activity spend picks up."

Elsewhere, Chairmen, both of committees and the group, are taking greater personal accountability for standards of governance with personal introductions to governance statements rising markedly. At Group level, it rose to 60%, up from 47% last year. Among the committees real change has been seen; remuneration committees rose by 42% to 71%, audit committees by 91% to 44% and importantly nomination committees are waking from their slumbers to rise by 83% to 32%.

The research also found that companies provide shareholders with limited information on risk management and internal control, with only 27% of the FTSE 350 provide real insight into how they review the effectiveness of their systems of internal control, showing no improvement year on year. Additionally, 84% do not demonstrate an integrated reporting approach, failing to demonstrate the link between discussion of  their business model, future plans, strategy and key risks.

Lowe continued: "After more than two decades of evolving governance guidance in the UK, many of us may be wondering if there is anything left to improve. Our 2013 research shows the answer must be an emphatic 'yes'. The economic, commercial and regulatory environment continues to change and governance practices are not keeping pace.

"There remains a lot of room for improvement. Clearly, many businesses are still struggling to articulate the relationship between their business model, strategy and risk management frameworks. We warmly welcome BIS's Strategic Report Regulations. For too long companies have been able to hide behind current guidance and state only that they have reviewed control effectiveness while giving no real insight into their risk management and control practices."