Audit Firm Governance Code launched
A new code launched last month will see independent non-executives brought into the governance structures of eight of the UK’s leading audit firms.
The Audit Firm Governance Code – drawn up by an independent working group established by the UK’s Financial Reporting Council and the ICAEW – envisages the core role of independent non-executives as helping: to enhance confidence in firms’ decision making; to address risks that arise in an audit firm’s businesses that are subject to little or no regulation; and to ensure that stakeholder concerns are properly communicated at the highest level in the firm.
In its research, the working group recognised that much good practice already exists in firms’ governance. This is reflected in the new code which also draws on aspects of the existing Combined Code for listed companies to provide a benchmark of good governance.
‘Audit firms serve the public interest by playing a vital role in the capital markets,’ said Cairn Energy chairman Norman Murray who headed up the working group. ‘The code provides a template that boards and shareholders can use to assess a firm’s governance practices. This should also provide a basis for enhanced dialogue between institutional investors and the audit firms.’
This dialogue is seen as an important feature of the code. ‘It would be unfortunate if the application of the code were seen by firms, listed companies and their shareholders as primarily an exercise in compliance and disclosure performed for the benefit of regulators,’ the working group stresses.
And it calls on the firm’s leadership to ‘set the right tone at the top’ by taking the code to heart rather than seeing it only as a cost of doing business.
The code, which other firms may wish voluntarily to adopt in full or in part, should apply to financial years commencing on or after 1 June 2010.