Big U.K. audit firms will have to involve independent non-executive directors in their decision-making processes for the first time under a new code aimed at improving their corporate governance practices.
Core aims of the code are to boost investor confidence in the quality of listed-company audit work and reduce the risk of a big accounting firm going bust or pulling out of the audit market.
Deloitte, KPMG, PricewaterhouseCoopers, and Ernst & Young said they were looking at ways of appointing non-executive directors. BDO, the U.K.’s fifth-largest firm, appointed two independent non-executives to its U.K. practice over a year ago.
The code says the non-executives have a duty of care to the audit firm that appoints them, but adds: “They should command the respect of the firm’s owners and collectively enhance shareholder confidence by virtue of their independence, number, stature, experience, and expertise.”
Grant Thornton’s U.K. chief executive, Scott Barnes, said his firm would comply fully with the code. “With the economy under pressure at this time, it is particularly important that the investment community has faith in the quality of listed-company auditors and the statements they provide,” he said. “We have already begun the process of recruiting independent non-executives with suitable experience and expertise who will bring a useful external market perspective.”
The code was produced by the Institute of Chartered Accountants in England and Wales and the Financial Reporting Council. It applies to the eight largest U.K. accounting firms, which between them audit 95 percent of the companies listed on London Stock Exchange. Audit firms are meant to comply for financial years starting on or after June 1, or give a public explanation of any non-compliance.
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