An analysis of shareholder votes filed between January 1, 2018, and December 31, 2020, shows that, on average, roughly 98% of votes were cast in favor of auditor ratification.1 Votes against auditor ratification comprised 2.0% of the total votes; abstained votes account for the remaining 0.4% of shareholder votes cast. The percentage of votes against auditor ratification has increased since our last analysis of auditor ratification votes. However, this increase builds on a trend that Audit Analytics has made note of over the past three years.

We found that 95 out of 100 times, fewer than 5% of votes were cast against the auditor. The table to the right is a frequency distribution analysis of percentage votes against auditor ratification. It magnifies the results of the 2.0% of total votes against auditor ratification over the past three years. The table shows given bins with the percentage of votes cast against ratification, and it shows the number of auditor ratification proposals that fall into each bin.
For example, there were 6,862 ratification proposals in which the votes cast against ratification were between 0% and 1.00% of the total shareholder votes cast. In all, roughly 95% of auditor ratification proposals had 5% or less of the votes cast against ratification. At the other end of the spectrum, there were 31 instances since 2018 when more than 25% of shareholders voted against ratifying the auditor. Notably, three votes in 2020 saw more than 40% of shareholders cast votes against ratification, an exceedingly rare occurrence. (See tables below.)
To put it in a different perspective, see the histogram below. This graph, showing the same data as the table above, displays how frequently and resoundingly the auditor is ratified. This suggests that it is worth taking a closer look at the rare cases in which shareholders voice significant disapproval.
The occurrence of shareholders voting in large numbers against auditor ratification has been increasing. Over the last three years, there have been four instances when more than 40% of a company’s shareholders voted against ratification; three of those votes occurred in 2020.
In 2020, there were 13 entities with more than 20% of shareholder votes cast against ratification. SPAR Group [SGRP], LM Funding America [LMFA], and Barnwell Industries [BRN] top this list, with more than 42% of votes against auditor ratification.
Both SPAR Group and Barnwell Industries had previous votes where shareholders voted in large quantities against the company’s auditor. In 2019, 30.85% of SPAR Group’s shareholders voted against ratification. For Barnwell Industries, over 5% of shareholders voted against the company’s longstanding auditor in six of the last seven years. Worth noting, Barnwell Industries opted to change auditors in 2020.
Looking at the highest votes against auditor ratification among the S&P 500 in 2020, we see lower percentages. However, these amounts are certainly enough to trigger a red flag – especially among this group of companies.
Several of these listed companies have faced significant votes against auditor ratification for years. UDR [UDR] and General Electric [GE] top this list for the second year in a row. Masco Corporation [MAS] had a larger percentage of shareholders vote against ratification in 2020 compared to 2019. For S&P 500 newcomer Salesforce.com [CRM], over 5% of their shareholders voted against ratifying the company’s auditor each year for over a decade.
The table below shows the top ten companies with the highest percentage of votes against in the last five years.
Findings in academic research suggest that greater shareholder dissatisfaction with an audit firm, as measured by votes cast against auditor ratification, is associated with higher audit quality, including fewer accounting misstatements and lower abnormal accruals.2
While shareholders’ votes carry advisory power, the Board of Directors has no mandatory obligation to take voting results into consideration. While some research does suggest auditor dismissals increase as the proportion of shareholder votes against ratifying the auditor goes up, it is important to note that ratification votes are non-binding and auditor changes can occur for reasons other than shareholder votes. With that said, of the companies with the top ten highest votes against since 2016, just three disclosed a subsequent auditor change: Immersion Corp, Barnwell Industries, and Impinj.
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1. Data in this analysis came from the Audit Analytics Auditor Ratification database and is based on shareholder voting results for the ratification of independent auditors as disclosed in SEC filing 8-K’s Item 5.07 between January 1, 2016 and December 31, 2020. ↩
2. For more information, see our in-depth discussion of this research paper in a previous blog, Academic Spotlight: Auditor Ratification’s Impact on Audit Quality. ↩