I write in response to this 22 December article headlined: “The Babcock audit committee chair with the office at PwC”.
First of all, we agree with you that Michael Sharpe brings to the Babcock & Brown Ltd board a wealth of experience and knowledge. We were delighted that someone of the calibre of Mr Sharpe agreed to join our Board at the time of our IPO in October 2004.
We also agree with you that audit independence is an important issue. It is the responsibility of the boards of each Babcock & Brown managed fund to appoint the auditors of its fund and to oversee and review the independence of the auditors on an ongoing basis. In the main, the boards of Babcock & Brown managed funds have adopted a policy of appointing as manager of the funds a different audit firm to the firm used by Babcock & Brown, to ensure a high degree of independence is maintained. We believe this policy is in line with market best practice.
Mr Sharpe is an independent director of Babcock & Brown Ltd and Chairman of the Audit & Risk Management Committee. He does not sit on the boards of any of the Babcock & Brown managed funds. Mr Sharpe therefore has no influence over the appointment of PwC as auditors to any Babcock & Brown managed funds.
A large proportion of the assets which make up Babcock & Brown Power’s initial portfolio were previously owned or controlled by subsidiaries of Babcock & Brown Limited immediately prior to the IPO of Babcock & Brown Power and as such were audited by Ernst & Young as part of Babcock & Brown Limited’s audit. The proposed appointment of PwC as auditors of Babcock & Brown Power going forward is a decision for Babcock & Brown Power’s Board of Directors.
We also note while on this topic that there are a limited number of global accounting firms. Babcock & Brown utilises the services of Deloitte Touche Tohmatsu to provide support to our internal audit function and Ernst & Young for its external audit. Further, Babcock & Brown actively engages the other two global accounting firms in areas such as taxation advice, valuation work, due diligence and investigating accountant assignments. The appointment of firms in these instances is the decision of Babcock & Brown management, not the Board of Directors. In all appointments we are very conscious of the issue of ensuring audit independence for Babcock & Brown and ensuring the Boards of the managed funds have a clear field to avoid audit conflict.