The UK’s Financial Reporting Council (FRC) has launched a public consultation on new proposals to strengthen the Audit Firm Governance Code. This is necessary in connection with the implementation of the program to improve the quality of audit and the audit services market resilience.
The updated Code is not intended for all audit firms, but for the largest – the ‘Big Four’ and those companies that audit FTSE 350. However, regulators are going to apply the new requirements to auditors who provide their services to significant amount of public interest entities.
It will be recalled that in the United Kingdom there is an obligatory operational separation of audit and related (non-audit) services at the largest market participants. In such conditions, the corporate leadership of professional organizations are subject to special requirements. Ironically, the ‘Big Four’, although initially objecting, were quite positive about the separation and even largely completed it much earlier than the deadlines set by the regulators (they were given four years). However, the FRC regulators have concluded from their observations that additional efforts are still needed to strengthen corporate governance and improve oversight.
This is exactly what the Financial Reporting Council is trying to do today. The Audit Firm Governance Code is amended to clarify the role of partnership boards in internal controls, as well as to clearly define the roles of the board chair and the senior partner/chief executive. The amendments also introduce criteria for board composition and strengthening the position of independent non-executives within audit firms. Particular attention is focused on long-term sustainability, corporate culture and human resources.
The consultation is open until November 18.