The manager of Norway’s NOK11trn (€1.1trn) Government Pension Fund Global has published its response to the EU’s recently closed corporate reporting consultation, saying companies should comply with both the letter and spirit of laws – but do not always do so.

Norges Bank Investment Management (NBIM) also took the opportunity to say that corporate audit committees should be capable of truly independent investigations into serious problems.

In a letter to the European Commission written by NBIM’s chief corporate governance officer Carine Smith Ihenacho and senior analyst Séverine Neervoort, the Norwegian central bank arm welcomed the Commission’s decision to assess the quality of corporate reporting in the EU.

“Deficient audit quality poses financial risks to investors as we rely on company reports to provide an accurate and complete picture of the company’s financial health,” the pair said.

“When reporting financial information, companies should seek to comply with both the letter and spirit of laws and follow applicable guidance. In our response, we note that this is not always the case,” they said.

Smith Ihenacho and Neervoort said high-quality corporate reporting enhanced investors’ ability to make decisions that resulted in efficient capital allocation, and that high audit quality enhanced trust in financial markets.

In its letter to the Commission, which was sent in addition to questionaire responses, NBIM mentioned the role of audit committees at companies, saying they should ensure they had procedures in place to investigate alleged impropriety, and that such investigations were truly independent, adding that boards should report on the steps taken to prevent fraud.

“Such reporting would help strengthen directors’ responsibility and accountability for fraud prevention,” Smith Ihenacho and Neervoort wrote.

The duo also welcomed the Commission’s efforts over the years to encourage “cultural change” in the audit sector and create more competition in the market.

NBIM believed audits should not just show nominal compliance with accounting standards, they wrote, but take “a broader view” by also confirming the accounts gave a true and fair representation of a company’s financial health, “free of fraud and material misstatements”.

Last month, NBIM made public its response to a consultation on the Climate Disclosures Standard Board’s (CDSB) framework, in which it pushed for a broader definition of social impacts in the code.

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