The eight firms that audit about 95
percent of companies listed on the main market of the London Stock
Exchange must now comply with an Audit Firm Governance Code.
The rules mostly codify existing best
practice. The one major change is firms must employ independent
Despite existing levels of governance meaning
the release of the code has little direct impact on the firms
involved, it is being watched by regulators, networks and firms
abroad, as well as the UK audit firms that the code is not
The profession also sees the new guidelines as
a valuable way to demonstrate their transparency and governance to
the wider public.
The 18-page document was developed by an
independent working group formed by the Financial Reporting Council
and the Institute of Chartered Accountants in England and
In addition to the independent non-executive
requirement, there are also sections on leadership, values,
operations, reporting and dialogue.
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Anthony Carey from Mazars UK was part of the
working group that prepared the code. He told The Accountant there
are four main benefits:
• Enhanced transparency;
• Enhanced confidence in the public interest
• Enhanced shareholder dialogue; and
• Bringing forward the competition and choice
Mazars is one firm that will ensure it
complies with the code, both in the UK and globally, despite not
having to comply.
Mazars London office managing partner David
Herbinet said the firm has complied with most parts of the code at
an international level for the past three years. It will now bring
non-executive directors on board.
“We have already included the possibility of
doing this in our global partnership charter, which is the
agreement that regulates how the Mazars partnership works
internationally, so there is nothing that we believe is going to be
out of reach for Mazars,” Herbinet said.
Herbinet said the increased transparency will
help in the competition and choice debate because it will help
shareholders and audit committees understand how non-Big Four firms
“We feel at the moment that a lot of the key
decisions in terms of appointing new auditors or retaining auditors
are based on what people think of firms as opposed to facts and
reality,” he explained.
RSM Tenon Audit is another UK firm that the
code does not apply to. Chairman Alistair Hunt said it already
complies with most of the code and will be discussing the idea of
independent non-executives at board level.
Grant Thornton International chief executive
Ed Nusbaum said the code is a great concept and has huge
implications for firms throughout the world.
“I think it is a good time to re-examine the
governance of the global organisations and each country,” he
Grant Thornton will explore the idea of
external directors at the international level but is far from
making a decisions.
Nusbaum also warned that improving governance
is a continuous process and external directors will not “magically
improve audit quality” overnight.
“We have to make sure nobody has that
misperception, certainly outside directors are not going to start
reviewing audits,” he said.
Nusbaum said that in the long term, external
directors will be able to provide creative ideas and solutions from
a business perspective.
PricewaterhouseCoopers UK also supports the
code and head of assurance Richard Sexton said the firm is well on
its way to appointing external directors.
There has been some talk that finding external
directors could be challenging in terms of independence, but the
UK’s largest firm does not think this will be a problem.
“There are lots of good people out there and
we think there are lots of good people who are going to want to
work with the leading firm,” Sexton said.
Firms that must
• Baker Tilly
• Ernst & Young
• Grant Thornton