Crack the code

While there were many recommendations in the recently released audit firm governance code, clearly the key feature is the appointment of non-executives within the firm’s governance structure to act as an effective conduit to institutional shareholders and the firm’s stakeholders.

For public companies and, nowadays, for many other clients, our appointment and reappointment as auditor is driven by the decisions of audit committees. Members of audit committees need assurance about the standing and quality of firms they appoint as auditors. Information about the firm, its quality and its processes are already in the public domain in the form of our public report from the Audit Inspection Unit and our transparency report.

However, I hope that the additional material required by the code and the involvement of non-executives in the firm will provide additional assurance that the audit committees are right to place their confidence in us.

Our firm recognises that our distinct culture is derived from our partners and staff and that underlying everything the firm’s leadership has a duty to them as key stakeholders.

Their livelihood and professional reputation is bound up with that of the firm. Much of what the code requires is already in place at the firm and we have a strong governance structure led by our board.

However, the public nature of the confirmations made by the firms coming from the code and the presence of non-executives will, I hope, be a positive signal to them.

Of course, I also hope that our non-executives will bring insight to the firm that will help us further to develop our business.

Our fear is that the code will not have the wider impact on the outside world that it is intended to have; that institutional shareholders either will not engage with our non-executives or, if they do, the message will not be heard by those at the sharp end of decisions, or that audit committees will not be aware of the code and place any weight on it.

If this happens, the code will partly have been an exercise in additional bureaucracy for the firm. We made the point strongly to the working party developing the code that steps had to be taken alongside launching the code to engage with stakeholders about its significance.

The main challenge for the firm in introducing the code is to recruit non-executives who are both of the right calibre and able to command the respect of the firm’s partners.

All in all though, we have a positive expectation of the benefits of the code. Time will tell.

Ian Mills is senior partner at PKF (UK) LLP.

Top audit firms take non-executive action