Top audit firms take non-executive action

It sounds like a bad joke – how many non-executives does it take to change a business’s culture?

But that’s the question being faced by the largest eight audit firms deciding how they will deal with last month’s audit governance code.

Among a raft of new measures, the code stipulated that audit firms appoint independent non-executives. What the code does not stipulate is how many non-executives the firms should hire – the only guidance being the inclusion of an “s”: implying more than one.

In the wake of the code’s release, the firms were contacted by headhunters punting their services, which has led them to start working out how many non-executives do we need?

All firms say the number is irrelevant. It’s rather the quality of the non-executives that matters. However, that didn’t stop most asking what their rival firms were considering.

For the record, Baker Tilly is undecided but is leaning towards hiring two. PKF has confirmed it will appoint two non executives. In the upper mid-tier, BDO can lay claim to being the only firm with two non-executives already in place, while rival firm Grant Thornton said it was also tentatively talking about two.

Among the Big Four, Ernst & Young said it was considering three, while KPMG initially said “a handful” but then suggested it was thinking of at least three as well.

Deloitte is planning for three non-executives, while Price­waterhouseCoopers has dec­ided to add a whole new tier to its board structure, with the expectation that three non-executives will take on roles.

Avoiding conflicts of interest on recruits will be key for the firms in complying with the code’s July deadline.

IN OUR VIEW

Of course, the firms are more concerned with finding the right people than getting the right number. But the firms run in packs and a big part of their decision seems to be what everyone else is doing. Self regulation, perhaps?

Further reading:

ICAEW's Audit Firm Governance Code