A former Big Four partner who criticised auditors for forgetting that their core clients are investors is to launch a new company to provide assurance to audit committees.
Jonathan Hayward, a former audit partner at PricewaterhouseCoopers, has launched Independent Audit, to provide services to audit committees and company boards that will check on the work of statutory auditors. He is joined by Richard Sheath, also a former PwC partner.
Hayward’s pitch is that companies may well comply with accounting rules, but they still have accounts that are some distance from financial reality.
He says his firm will examine the audit and provide advice on whether reality matches the accounts. ‘We’ve taken soundings from non-executive directors from many backgrounds and have had a positive response,’ he said.
The move is one of the earliest commercial reactions to the increased responsibilities resulting from the recent Higgs and Smith reports.
Possibly one of the most radical proposals comes from Smith who wants audit committee members to have the right to tell shareholders of any disagreements between themselves and the board.
Many elements in the Smith recommendations could support Hayward’s plans.
If more resources are made available to audit committees this could be used to pay for his company’s services.
But the new resources might have to be considerable. Independent Audit is making a virtue of the fact that it will only use experienced auditors.
Returning power to audit committees is in tune with Hayward’s thinking.
When he made his submission to the House of Commons Treasury select committee that was looking at issues like Enron, he said: ‘The underlying cause is that auditors see company management as their client, rather than the stakeholders.
‘Although audit committees may recommend appointment and approve fees, and AGMs must approve the auditor’s appointment or reappointment, these recommendations and approvals almost invariably follow management’s preferences.’