Big audit firms back new governance code

The joint publication by the ICAEW and Financial Reporting Council of a code of governance for listed company auditors has been received with a flurry of supportive statements from the firms concerned.

The new Audit Firm Governance Code will apply to accounting firms that audit more than 20 companies listed on the main London Stock Exchange. At the moment, this means eight firms: Baker Tilly; BDO; Deloitte; Ernst & Young; Grant Thornton; KPMG; PKF; and PwC.

The code is the profession’s response to an FRC project to address the issue of choice within the audit market. The new document specifically answers one of the points raised in an October 2007 report from the FRC’s Market Participants Group (MPG). The MPG wanted to see any firms auditing “public interest” entities sign up to Combined Code-style governance principles, or give a considered explanation why they did not.

Since such a code did not exist, the FRC invited the ICAEW to convene a working group to developed and consult on a draft code. The group was led by Norman Murray, chairman of Cairn Energy.

The Audit Firm Guidance Code (18-page PDF) follows the structure of the UK Corporate Governance Code for listed companies with 20 principles and 31 provisions adapted for the needs of what are generally owner-managed partnerships.

In addition to complying with professional regulations and requirements, firms are expected to publish an annual “transparency report” explaining how it has complied with the main independence requirements of the code integrate disclosures called for by the code.

“We have embraced the principles of the code because we recognise that if the code is to be successful in promoting choice in the audit market we need to be open and transparent in our reporting of the practices we have in place to ensure we deliver high quality audits,” commented BDO’s UK managing partner Simon Michaels.

Continued...